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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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With U.S. government shutdown angst resurfacing, this weekend’s Taiwan election in view, fourth-quarter earnings looming again and Boeing grounding aircraft after a mid-air blowout, Wall St’s dour new year looks set to fail a hoary old five-day test.

Old investment almanacs posit that if the first five trading days of the S&P500’s new year are net positive or negative, it predicts a gain or loss for the full 12 months. Hocus pocus or not, the ‘five-day rule’ has proven correct for five years running – despite unforeseen curve balls from 2020’s pandemic and 2022’s Ukraine invasion.

And unless the index rallies more than 1.5% later on Monday, those first five days will be in the red for 2024.

An eagle tops the U.S. Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

Those who dismiss such old ‘rules’ point out its fallibility – it missed marginally in four of the five years prior to 2019 –  and lampoon the ease with which it works due to the fact Wall St has typically ended higher more often than not over the years.

Nevertheless, it has held true for 80% of the 64 years to 2014 – so not a great portent for 2024 for the superstitious.

Even though the S&P500 had its first daily gain of the year on Friday, futures are in the red again ahead of Monday’s bell – with the latest robust U.S. jobs report doing little to reverse a dominant new year theme of caution on interest rate cut bets.

Another forecast-beating payrolls gain in December showed few signs of the sort of labor market cooling that might prompt the Federal Reserve to rush into easing credit this year.

Futures show less than a two-thirds chance the 135 basis points of rate cuts priced for 2024 will now start as soon as March and 10-year Treasury yields, though lower, remain above 4%.

Dallas Fed boss Lorie Logan on Saturday underlined that caution, warning rates could even be lifted again to offset any easier conditions in financial markets.

“If we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made,” she said.

“In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.”

There were slivers of optimism, however, with Logan supporting moves to consider parameters that might see slowing of the Fed’s balance sheet rundown as excess liquidity parked at the central banks’s daily reverse repurchase facility tails off.

And despite tense geopolitics and Middle East strife since late last year, the New York Fed’s global supply chain pressure index fell back into negative territory last month.