Shares notch lower finish as 2024 starts with profit taking

US equities closed lower on Wednesday as the risk-off trend persisted, driven by profit-taking after a strong 2023. The energy sector outperformed due to a sharp rise in oil prices, while small-cap shares, particularly the Russell 2000 index, lagged. Economic reports, including JOLTS job openings and the ISM manufacturing report, slightly exceeded expectations. The FOMC minutes from December reiterated that policy rates are likely at or near their peaks. The 10-year yield started at 4% but closed lower at 3.91%. Technology, retail, and banking sectors struggled, contributing to declines in major indices. Elsewhere, European equity markets saw extended losses on Wednesday afternoon, as the STOXX 50 closed 1.5% lower from recent multi-year highs due to rising bond yields and investors digesting key economic data. 

Summary for 04.01.2024 

• Asian shares declined as uncertainty over the timing and scale of Federal Reserve rate cuts persisted, prompting profit-taking. Japan’s Nikkei fell 1.2%, affected by the earthquake on New Year’s Day and weak PMI data. Tech-heavy indexes, like South Korea’s KOSPI and Hong Kong’s Hang Seng, suffered losses. The Fed’s minutes acknowledged progress against inflation but gave few clues on rate cuts’ timing. Markets remained cautious ahead of nonfarm payrolls data. Australian and Indian equities dipped, while Chinese shares lagged due to concerns over economic recovery despite positive services sector data. 
• European shares are set for a muted start as investors assess monetary policy, while US equity futures were stable amid uncertainties tied to economic outlook, the dollar, Treasury yields, and potential Federal Reserve interest rate cuts. 
• Asian trade saw a slight increase in oil prices this morning following the shutdown of Libya’s major oilfield, intensifying concerns about tight supplies. Disruptions in the Red Sea and the Israel-Hamas conflict raised worries about global oil supply disruptions. Expectations of tighter supplies were fuelled by a larger-than-expected draw in U.S. oil inventories, though weak fuel demand persisted.  
• China’s service sector exceeded expectations in December, with the Caixin Services PMI growing to 52.9, reflecting continued stimulus support and improved local demand. Despite positive signs, challenges remain, including marginal growth in foreign orders and weak sales prices amid domestic competition. The sector’s recovery contrasts with the official non-manufacturing reading, emphasizing the importance of both surveys for a comprehensive understanding of China’s economy. 
• Fed policymakers viewed the policy rate as near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves, minutes from the last FOMC meeting in December 2023 showed. Almost all participants indicated that reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024. 
• In December, the US ISM Manufacturing PMI slightly improved to 47.4, beating forecasts, yet indicated the 14th consecutive month of contraction in factory activity. While production rebounded, new orders, employment, and inventories continued to shrink, and price pressures decreased, offset by positive trends in the Supplier Deliveries Index. 
• Marking the lowest level since March 2021, US job openings declined by 62,000 to 8.79 million in November 2023, representing the third consecutive monthly decrease. This downturn, below market expectations, reflected ongoing labour market easing, particularly in transportation, warehousing, and utilities, as well as the federal government, while wholesale trade and the Midwest experienced increases. 
• Hospitals in New York, California, Illinois, and Massachusetts have reinstated mask mandates amid a surge in COVID cases, flu, and respiratory illnesses. The move aims to prevent staffing shortages and protect healthcare workers. Rising hospitalisations, political tensions over mask mandates, and the impact on healthcare staff are key concerns. The CDC reported over 29,000 COVID hospitalisations and 14,700 flu hospitalisations in a recent week. The reintroduction of mask mandates reflects ongoing challenges in managing public health measures during the pandemic. 
• General Motors retained its position as the top-selling automaker in the US in 2023, outpacing Toyota, with US new vehicle sales reaching approximately 2.6 million units, a 14.1% increase from the previous year. The industry experienced its best year since the pandemic, with overall US new vehicle sales reaching around 15.5 million units, and electric vehicles accounting for nearly 17% of sales. 
• Activist hedge funds ValueAct Capital and Blackwells Capital are backing Walt Disney in its board defence against Trian Fund Management. Disney reached a deal with ValueAct for strategic advice and director support. Blackwells nominated three directors supportive of Disney’s strategy. Trian, seeking board seats, aims for cost-cutting and streaming revamp. The battle highlights the stakes in Disney’s turnaround under CEO Bob Iger. 
• Jefferies upgraded GSK to Buy, citing positive near-term risk-reward driven by HIV injectables, vaccines, and a robust pipeline. The price target rose to 1,900p. AstraZeneca was downgraded to Hold due to margin concerns and fewer 2024 catalysts. The AstraZeneca price target decreased to 11,000p. Jefferies views Novartis as the top pick amid sector headwinds. 
• Wolfe Research upgraded Citigroup to Outperform from Peer Perform with a $58 price target, citing a more compelling risk-reward after being on the sidelines since April 2021. The firm sees emerging tailwinds, including regulatory roll-back and cost savings, and envisions a potential 25% upside for Citigroup. 
• Goldman Sachs adjusted ratings for various capital markets equities, downgrading Blackstone, Charles Schwab, Raymond James Financial, and CME Group, while upgrading State Street and Ameriprise Financial. The bank anticipates improved capital velocity in 2024 but notes valuations are out of sync with growth expectations, expecting a realignment in share price performance. 
• Analysts at D.A. Davidson suggest that Apple needs to enhance innovation to attract new consumers, particularly in the face of competition from next-gen technologies like folding handsets and augmented reality glasses. They propose leveraging generative artificial intelligence and utilizing consumer data to create novel applications and experiences, emphasising the importance of introducing compelling products in China and India. 
• Deutsche Bank reiterated a Buy rating on Tesla with a $260.00 price target, acknowledging the successful 4Q volume report meeting annual targets but expressing concerns about 2024 earnings due to reduced forecasts and other factors. Jefferies, reiterating a Hold, raised the price target to $255.00, noting total deliveries beating estimates but flagging reduced leasing and surprising “Other Model” deliveries. Analysts suggested a potential smoother ramp in implementing 4680 batteries or producing the Cybertruck. 
• Wells Fargo analysts elevated Snap and Pinterest to the top of their Overweight list, citing company-specific drivers for revenue acceleration in 2024. They raised Pinterest’s price target to $47 from $38 per share, maintaining a $22 target for Snap. Wells Fargo anticipates Snap’s 2024 revenue to surpass consensus, driven by contributions from Snap+ subscriptions and Spotlight. For Pinterest, the bank expects continued ad load improvement post-Amazon integration and forecasts impressions growth acceleration. 
• Verizon Communications shares were upgraded to Overweight from Sector Weight at KeyBanc Capital, setting a $45 price target. The bullish view is based on low competitive intensity in the wireless industry, expectations of improved postpaid phone net add performance, robust broadband subscriber growth, anticipated EBITDA growth, and higher quality cash flows compared to AT&T. The analysts suggest a deleveraging story and potential for share repurchases into 2025. 
• Intel is forming a new independent company, Articul8 AI, dedicated to its artificial intelligence software efforts. Backed by investors including DigitalBridge Group, the entity will have an independent board, and Intel will retain a shareholder role. Articul8 stems from Intel’s collaboration with Boston Consulting Group on generative AI technology, addressing concerns about data privacy and security. The move aligns with Intel’s strategy to seek external capital for specific business units, following its spin-out of Mobileye Global and plans for an IPO of its programmable chip unit. 
• UBS remains optimistic about AI’s investment case in 2024, citing its integral role in tech giants’ innovation. UBS upgraded its AI industry revenue estimate to reach $420 billion by 2027, a 72% annual growth rate, citing strong demand exceeding expectations and improved transparency. The semiconductor and software industries are considered prime ways to capitalize on AI’s growth in portfolios. 
• DA Davidson initiated coverage on NVIDIA with a Neutral rating and a price target of $410 per share, implying a 15% downside risk. While recognizing NVDA’s leadership in accelerated computing with a 20% CAGR projection, analysts express scepticism about consensus expectations materializing, citing vulnerability as AI approaches the “trough of disillusionment.” They anticipate a reversion to the trend line within the next 2-6 quarters and expect a decrease in AI investment beyond 2024.