The S&P TSX composite index screen at the TMX Market Centre in downtown Toronto is photographed on Friday, November 11, 2022. THE CANADIAN PRESS/Tijana Martin

The new year began with a whimper on its first trading day, but many investors remain hopeful that 2024 will bring modest gains for stock markets as well as the beginning of interest rate relief.

The S&P/TSX composite index closed down 86.30 points at 20,872.14.

In New York, the Dow Jones industrial average was up 25.50 points at 37,715.04. The S&P 500 index was down 27 points at 4,742.83, while the Nasdaq composite was down 245.41 points at 14,765.94.

Dragging down markets was U.S. tech giant Apple Inc., which fell nearly four per cent on an analyst downgrade and spurred fears that discretionary consumer spending may be cooling.

The Apple downgrade also fueled losses in high-growth, riskier sectors like technology. In Canada, the tech sector was the day’s biggest loser, with the TSX capped information technology index down almost three per cent by day’s end.

But Ian Chong, portfolio manager at First Avenue Investment Counsel Inc., advised against placing too much importance on single-day market weakness. He pointed out that equities enjoyed a big rally in November and December, and most analysts were expecting a bit of a pullback.

“Historically the month of January isn't a particularly strong month,” Chong said. “And especially after such a strong November and December, it just looks like the markets are taking a bit of a breather given the rally we saw at the end of 2023 — which was arguably a little bit overdone.”

In fact, Chong said, many analysts are still projecting stock markets to push modestly higher in 2024. Later this month, companies will begin releasing their fourth quarter financial results, which are expected to show some solid sales and earnings growth.

"So that could provide a little bit of stability and a little bit of life as a start to 2024," Chong said.

But the biggest driving factor behind investor optimism this new year is the potential for central bankers to lower interest rates. The market rally that closed out 2023 was in large part due to rising hopes that the U.S. Federal Reserve may have successfully engineered a "soft landing" — slowing the economy enough with high interest rates to cool inflation but not enough to cause a major recession.

Markets are now expecting the U.S. central bank to begin rate cuts as early as March, which would be a boost for stock prices on both sides of the border. But while hopes are high, there is still a lot of uncertainty around what will actually happen, Chong said — and a lot depends on upcoming inflation data releases.

"Consensus estimates are for CPI to continue to move lower ... but the last mile is the most difficult to achieve, right?" he said.

"If inflation, especially core inflation, becomes sticky, rates could hang in there a little bit longer."

Chong added the other big unknown that could affect markets in 2024 is geopolitical risk.

"The Russia-Ukraine conflict is entering its third year. The war in the Middle East is not abating at all," he said.

"As well, there are a number of major countries with elections slated for 2024, like the U.S., Mexico, Taiwan, India and Indonesia. So there will be quite a few points of volatility throughout the year, I think."

The Canadian dollar traded for 75.10 cents US compared with 75.61 cents US on Friday.

The February crude oil contract was down US$1.27 at US$70.38 per barrel and the February natural gas contract was up five cents at US$2.57 per mmBTU.

The February gold contract was up US$1.60 at US$2,073.40 an ounce and the March copper contract was down one cent at US$3.88 a pound.

This report by The Canadian Press was first published Jan. 2, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

News from © The Canadian Press, 2024