Worst start to a year in decades as stocks, bonds drop

Traders hoping that a pan-markets year-end rally would pick up where it left off got the opposite on 2024’s first trading day, a session that featured one of the worst-ever concerted drops in stocks and bonds to start a year.

The SPDR S&P 500 ETF Trust (ticker SPY) and iShares 20+ Year Treasury Bond ETF (TLT) each fell 0.6% Tuesday, the first time they’ve both slumped so much to start the year since the bond gauge began trading in 2002. 

While the first-day performance says little about what markets will do for the rest of 2024, the synchronized retreat signaled at least some hesitation among investors to chase a fourth-quarter rally that boosted both US shares and longer-maturity Treasuries by more than 10%.

“The most common concern or belief we have heard from investors is that overbought conditions and euphoric sentiment will set up for a reversal to start 2024 in both bond yields and stocks,” said Dennis DeBusschere, founder of 22V Research. “The overbought conditions and sentiment readings are tough to argue with.”

Treasury yields ended higher across the curve Tuesday, led by the front-end. A heavy corporate issuance slate weighed on spreads, while traders pared bets on interest-rate cuts from the Federal Reserve this year. 

Tech megacaps, among the top winners in 2023’s stock market, led Tuesday’s selloff as Apple Inc. slumped following an analyst downgrade. The Nasdaq 100 tumbled 1.7%, marking the third-worst first-day performance since the 2001 dot-com bust.  

Global gauges tell a similar story. Tuesday marked the first time the MSCI All Country World Index of equities and the Bloomberg Global Aggregate Index of investment-grade debt slumped by as much together on the first full trading day of a year since at least 1999, when daily data for the bond index began. 

A slide in Chinese equities Wednesday also weighed on global stocks in a reminder the world’s second-largest share market may struggle to escape its prolonged slump. The MSCI China Index has fallen for the past three calendar years, dragging the gauge down by almost 60% from its peak in February 2021.

There are signs money may be flowing out of recent darling stocks and into cheap-looking laggards. While the Russell 1000 growth index fell 1.5% Tuesday, its value counterpart gained 0.4%.

“Crowding risk in the leaders of 2023 has been cited by many (including ourselves) as a key risk in 2024,” Bank of America Corp. strategists led by Savita Subramanian wrote in a note. A “January rout in megacap tech is now consensus.”