Meditations by the Roman Emperor Marcus Aurelius is, for me, the Bible, Koran, Talmud, and Bhagavad Gita all rolled up into one. A quote from this philosophical book, written from AD 161 to 180, is relevant to the stock market in January 2024:

“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”

Stocks have continued rising in recent days, but in bumpy fashion and with an undercurrent of unease. That’s because the Federal Reserve still calls the shots and investors are growing less sanguine about the timing of the central bank’s expected pivot.

Nonetheless, as I explain below, the fundamental and technical indicators tell us that the bullish narrative for equities remains intact.

To be sure, the yield curve has been rising, with the benchmark 10-year U.S. Treasury yield (TNX) edging past 4.1%. When the TNX rises, stocks tend to fall.

It’s also a worrisome sign that the CBOE Volatility Index (VIX), aka “fear gauge,” has hit a two-month high of about 13.

We’re getting mixed signals from the East. In a positive trend for Asian stocks, the Bank of Japan this week left its policy rate unchanged, boosting equities in the region. But China is causing concerns.

China’s gross domestic product grew 5.2% in 2023 on a year-over-year basis, the country’s National Bureau of Statistics reported January 17. However, beneath the surface, cracks are appearing in the Chinese economy. High debt, weak domestic demand, and a tottering real estate market are headwinds for the world’s growth engine.

Read This Story: Should You Trust The Rally?

It all begs the question: does the rally have legs? I believe so.

Consumer staples and communication services have been among the best performing sectors of the S&P 500 so far this year, boosted by strong fourth-quarter operating results from such sector stalwarts as Proctor & Gamble (NYSE: PG) and Verizon (NYSE: VZ).

The benchmark SPDR S&P 500 ETF Trust (SPY) continues to hover well above its 50- and 200-day moving averages, indicating powerful upward momentum (see chart, with data as of market close January 24):

The salient macro news this week will be the latest personal consumption expenditures index (PCE) report for the month of December, scheduled for release this Friday. Expectations are for core PCE (which excludes food and energy) to rise by 3% year-over-year, down from the November reading of 3.2%.

The Federal Reserve, which meets January 31, pays particularly close attention to the core PCE. The PCE is the Fed’s preferred inflation measure because it covers a much broader range of spending than the consumer price index (CPI), which only reflects out-of-pocket spending.

Expectations are for headline PCE to rise by 2.6% year-over-year, unchanged from the prior month.

Earlier this month, the December consumer price index (CPI) inflation report came in slightly hotter than expected, with headline CPI rising by 3.4% year-over-year and core CPI rising by 3.9%. Hence waning expectations for an early rate cut, which in turn has been lifting the TNX.

At the same time, Fed officials have been making more hawkish noises, which has been dampening sentiment on Wall Street. Market expectations are for the Fed to hold the fed funds rate steady at its policy confab next week. It’s increasingly likely that a rate cut won’t occur sooner than midyear.

Another cloud on the horizon is geopolitics. Wars in the Middle East and Eastern Europe could disrupt supply chains and cause another spike in inflation. An even worse inflation threat is terrorism on the Red Sea, which threatens oil supplies. Crude oil is a major inflation input.

But overall, inflation and interest rates are on a downward path. Accordingly, defensive sectors such as utilities and health care, which lagged in 2023, are coming to life this year.

Risk-on assets haven’t lost their appeal, not by a long shot. Technology companies remain in the driver’s seat. After rising by over 50% in 2023, tech is the top performing sector of the S&P 500 to date in 2024. Driving this enthusiasm, especially for the mega-cap “Magnificent Seven,” is the boom over artificial intelligence (AI).

AI-mania continues unabated in the new year, which will translate to the corporate bottom line. Tech companies are expected to grow earnings in 2024 by at least 15% on a year-over-year basis, according to research firm FactSet.

The main U.S. stock market indices closed mixed on Wednesday as follows:

• DJIA: -0.26%
• S&P 500: +0.08%
• NASDAQ: +0.36%
• Russell 2000: -0.73%

The S&P 500 rose to its fourth consecutive record high close. The surge in shares of Netflix (NSDQ: NFLX) propelled the tech-heavy NASDAQ higher, after the streaming service released stellar quarterly results.

It’s my contention that market leadership will broaden in 2024, with cyclical areas of the market such as small-cap stocks outperforming as economic growth accelerates. Despite signs of worry, the long-term perspective for equities is positive.

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John Persinos is the editorial director of Investing Daily.

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