Market Turbulence Marks the New Year as Stocks Dip, Tech Giants Falter and Bond Yields Surge

Shipping woes in the Middle East are also rattling markets, BYD has emerged as the top-selling EV and oil prices are reacting to geopolitical tension

• The markets are off to a shaky start for the new year start as stocks stumble, bond prices fall and interest rates rise in anticipation of Fed actions.
• Tech giants are faltering with a dip for Apple. Meanwhile, BYD's surge is reshaping the EV landscape, and streaming services’ churn is reason for concern.
• Geopolitical disruptions are influencing oil prices; shipping woes may hike costs and potential inflation could have implications.

The beginning of the new year heralded a rather disheartening start for the financial markets, following the considerable gains witnessed throughout 2023. Stocks, the stalwarts of the previous year's success, stumbled into 2024 as the S&P 500 took a dip of slightly over 0.5%, whereas the Nasdaq Composite, last year's champion, saw a slump of over 1.6%. Bonds also suffered a downturn, propelling interest rates upward, with the yield on 10-year notes breaching the 3.9% mark. Although the prevailing sentiment anticipates a Federal Reserve interest rate cut in March, this week’s economic data will shape this crucial decision.

The blame for yesterday’s market woes primarily rests on the shoulders of the "Magnificent Seven," notably Apple (AAPL), whose shares plummeted over 3.5% after a downgrade by a Barclays analyst. The prospects for recovery by these bellwether stocks remain uncertain, particularly as stock in Tesla (TSLA) displayed signs of pressure even before the market opened, indicating a 1.5% decline. A notable shift occurred yesterday when Chinese electric vehicle (EV) manufacturer BYD (BYDDY) claimed the title of the world's best-selling EV maker. Bloomberg's data highlighted a staggering 62% increase in BYD vehicle sales, encompassing both hybrid and pure EVs. The company surpassed Tesla in the fourth quarter, selling over 526,000 cars to Tesla's 484,000.

Apple’s downgrade was rooted in concern over its flagship iPhone sales, potentially compounded by apprehension surrounding Apple TV+ and other streaming subscription services. The Wall Street Journal reported that a significant portion of subscribers to major streaming services have terminated three of these services in the last two years. Unlike traditional television, streaming platforms witness fluctuating subscription rates because viewers often cancel services after concluding a show or season, resulting in more pronounced peaks and troughs.

Fluctuating oil prices and a surging U.S. dollar

The fluctuating trajectory of oil prices started higher yesterday and then receding by the day's end. Maritime trade from the Middle East was plagued by piracy, compelling companies like A.P. Moeller-Maersk to suspend all shipping activities through the Red Sea and Gulf of Aden. This development bears watching as prolonged disturbances in shipping could eventually translate into heightened costs for consumers and potentially affect inflation rates.

In another arena, the U.S. dollar experienced its most robust surge since March, marking three consecutive days of ascent. Citigroup's shares also soared by nearly 4% after an analyst upgrade. However, the cryptocurrency market experienced some turbulence, with bitcoin dropping slightly over 4% in early morning trading after surpassing $45,000 on Monday.

Forthcoming economic data

Today's economic calendar includes two significant data releases: the ISM manufacturing index and job openings (JOLTs), both scheduled for 9 a.m. CDT. Of particular interest is the JOLTs figure, potentially offering a preview of Friday's employment report, with economists predicting 8.85 million job openings. Later in the day, the minutes from the recent Federal Open Market Committee (FOMC) meeting are set to be unveiled. These morning reports and afternoon meeting notes will pave the way for Friday's eagerly awaited employment report, forecasted to reveal the creation of 163,000 jobs and an unemployment rate of 3.8%. As always, adherence to long-term investment plans and objectives remains prudent amid market volatility.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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