According to Sevens Report Research, last week's price action is important for 2024, noting the increased volatility.
"Stocks ended last week higher but also saw the biggest drop in several weeks last Wednesday, and the reason for the increased volatility is notable and gives us some hints about what could move markets early in 2024," the firm wrote.
They explained that last Wednesday's drop in stocks was mostly a function of disappointing earnings and the natural side effect of the relentless six-week, 15%+ rally in the S&P 500.
The firm noted that earnings from companies such as FedEx, Winnebago, General Mills and Nike "were not good" and that while declining inflation and a soft landing is good for Fed policy, it "may be a significant challenge for corporate America and negatively impact earnings."
"The broader reason for Wednesday's drop in stocks and the uptick in volatility is, generally speaking, all the good news that's out there is already priced into stocks and that leaves the market vulnerable to any disappointment," the firm added.
Usually, the price action in the week before Christmas and the week between Christmas and New Year's can be considered year-end noise. However, Sevens does not think that's the case this year.
"Last Wednesday's volatility does bring up two issues we need to watch: 1) Earnings disappointment and 2) The total lack of a 'Wall of Worry,'" they added. While they are not bearish to start 2024 and believe the underlying fundamentals of the market are "still clearly positive." the firm thinks investors are too complacent with this market as we begin the new year.