The stock and bond markets are struggling as we start 2024. Over the first three weeks of 2024 the stock markets are down and historically this has led to negative performance for the year. If the full results of the month of January finish negative then the odds increase for a difficult down year for the major averages. This should mean that the tech sector gets shafted with AI stocks leading the market down. Bond yields have lifted >9% from 3.79% to today’s 4.15% as investors now despair about the hoped for six rate cuts in 2024. Jobs data remains too strong, supply chain issues have returned due to loss of movement of goods through the Red Sea, and the US consumer remains in a spending mood despite financing this spree with increasing credit card debt. Bottom line, there are a lot of excesses in both the stock and bond markets. This year may be a year of business challenges, war expansion and political chaos. The US election will be a strange one, with the likely two geriatric and challenged contestants demeaning the US in the process.

We cover our concerns about the general market and our detailed very positive outlook for the energy sector in 2024, in our January 18 SER Report for subscribers coming out later today. 

On the economic front there have been quite a few releases of note:

• US Retail Sales rose by 0.6% in December more than double the forecast. 
• Industrial Production in the US grew 0.1%.
• The January Empire Manufacturing Index plunged to -43.7 versus a -5 forecast and a -14.5 prior result. US Manufacturing is having challenges. 
• The jobs data released the prior week shows most of the full time growth came from the government sector. More jobs here adds to deficit spending. 
• Rising energy prices will dash hope of a 2% inflation rate. It was hard work getting to 4% from 9% but getting the last 2% is proving very difficult. Chain supply issues and rising commodity prices have a major impact on this goal. Shelter rose 6.2% in December, followed by electricity with a rise of 3.3%. Both should rise higher throughout 2024. 
• Headline inflation in Canada rose to 3.4% impacted by higher energy prices. We see WTI rising US$20/b by year end. This will drive the inflation data higher. Toronto has proposed a property tax increase of 10.5%.
• AI forecasts expect massive productivity gains as the products are introduced to the marketplace. Goldman Sachs also says that this will impact 300M current jobs. Retraining 300 M people to the new technologies will be difficult on older workers. 
• El Nino is bringing heavy moisture from heavy rains and snow depending upon where you live. Heavy rains can lower sugar to wheat crops. Rice prices in Asia continue to rise sharply and are nearing US$1,000 a ton. This will require producing countries to take the robust prices or decide to feed their own populations and halt exports. 
• Layoffs are starting to be significant ones from large US corporations. Citibank plans 20,000 layoffs, Google has talked about 30,000 layoffs as it moves to AI ad tech from human employees. 

On the war and belligerent front:

• The party that won the election in Taiwan was the one China wanted to see defeated as it is against reunification. Expect more China military action, which if it expands, could turn into a blockade of the island. 
• The US and UK have continued strikes against Houthi targets to destroy ammunition dumps, command and control centers and sites being ready to fire at allied shipping. So far 2,000 ships have been diverted from using the Red Sea as attacks persist. Interestingly Russian tankers are moving their oil tankers to Asian buyers with no problems. The hope is that Iran does not get into a direct conflict with the allied forces.
• Tehran is now directly involved in the fighting having fired missiles into Pakistan and Iranian separatists and into Iraq against an Israeli spy base in Kurdistan. The Iranian missiles fired have a range to hit all of Israel and that may have been one of the benefits of Iran showing this capability now. Pakistan in retaliation has now fired into Iran to go after its opposition groups living in SE Iran. Iran now directly involved in fighting is a big escalation. We suspect more is to come! 
• More rockets have been fired at Israel. Fifty were fired yesterday in the largest barrage in weeks. 
• North Korea tested a missile tipped with a hypersonic missile that could hit Hawaii and Guam. They have been quiet for a while but with assistance from Russia are getting more aggressive so as to pressure South Korea and Japan on concessions (food etc.)
• US Intelligence now is concerned about Hezbollah attacking within the US as many of their operatives have entered the US illegally via the open border. 

Market Update:  We expect general stock market weakness in Q1/24 as markets are extremely overbought. If the general stock market continues to retreat over the coming weeks then energy stocks, which are high beta, will test the lows of early December. When that happens be ready to buy the bargains that develop across all markets. If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.