In recent days, the stock market has seen notable gains, with key indices, including the S&P 500 and the Dow Jones Industrial Average, reflecting bullish sentiments.
Notably, the S&P 500 index has surged by almost 3% so far in 2024, consistently holding its position above the 4,850 mark, while the Dow reached a historic milestone, surpassing 38,000 for the first time. These gains coincide with numerous companies preparing to announce their earnings in the coming days.
Despite the prevailing bullish trend, some market participants assert that the stock market is poised for a potential crash in 2024, citing specific indicators. In this context, Finbold has identified three crucial indicators whose performance is set to be announced before the end of January, likely influencing the stock market’s trajectory.
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Gross Domestic Product (GDP)
On January 25, investors will gather insights from the United States Gross Domestic Product (GDP) data for Q4 2023. The forthcoming data will provide an outlook for the general economic landscape, particularly growth. GDP encompasses various elements, such as housing and inflation, making it a critical focal point for economists.
Current expectations point towards another quarter of robust growth, around 2%. However, some economists anticipate a potential outperformance resembling the impressive 4.9% reading observed in Q3.
Notably, strong economic growth, reflected in high spending and low unemployment, tends to be inflationary. If the report indicates stronger-than-expected figures, it could lead the Federal Reserve to consider delaying anticipated rate cuts throughout the year.
Personal Consumption Expenditures (PCE) index
The PCE index, recognized as a key determinant for Fed policy, is expected to be released on January 26. This index measures inflation and indirectly impacts the stock market.
A rising PCE may signal inflation, prompting potential actions by the Fed on interest rates. Higher inflation can affect interest rates, corporate profits, and investor sentiment, influencing stock prices and sectoral performance.
Indeed, the index is anticipated to reflect ‘core’ inflation, with analysts projecting a 0.2% increase from the previous 0.1%.
Notably, many market participants consider PCE a more accurate measure than the less frequently updated Consumer Price Index (CPI), as it includes a broader range of prices. If both indicators show evidence of disinflation, it would strongly suggest a potential turnaround in the inflationary trend.
Fed Interest rate decision
On January 31, the market will look forward to the Fed’s interest rate decisions. Towards the end of last year, the stock market experienced a short-term rally based on the anticipation that the Fed might cut interest rates in 2024. This anticipation follows a substantial decrease in inflation from its peak in 2022.
Interest rates impact the stock market by influencing business borrowing costs, discount rates for stock valuations, and investor preferences between stocks and bonds.
On the other hand, low rates can boost corporate profitability and consumer spending, supporting higher stock prices. In contrast, rising rates may lead to lower valuations and a shift in investor sentiment.
