After the stunning rally that ended 2023, investors started 2024 with sobering losses that appeared to reflect the darkening geopolitical outlook.

There were some heavy losses across Asia on Tuesday - particularly in China, where weak home sales data undermined the property sector. In the U.S., the mega-cap Dow Jones Industrial Average eked out narrow gains, but both the S&P 500 and NASDAQ indexes lost ground.

The SDPR S&P 500 Fund (SPY  ), the exchange traded fund that tracks the S&P 500 fell 0.6% on Tuesday and the Invesco QQQ Trust (QQQ  ) which tracks tech stocks on the NASDAQ 100 fell 1.7%. Premarket trading on both ETFs indicated opening losses on Wednesday.

Geopolitical Gloom Deepens

The news from the Middle East and Red Sea were certainly sobering. Maersk (AMKBY  ), the shipping company which last week had decided to resume routes through the Red Sea, suffered another attack by Houthi rebels. U.S. warships engaged with enemy vessels, while Iran sent a cruiser to the region.

It was later reported that Israel had killed the deputy leader of Hamas in a drone strike on a building in Beirut, the capital of Lebanon.

This incident, being Israel's first incursion outside of Gaza in this conflict, raises concerns about the potential involvement of Lebanese Hezbollah militants and their allies, including Iran and Syria, further intensifying regional tensions.

Yet the market action didn't feel like a reaction to geopolitical events. Gold prices fell, as the tradition safe haven asset did not attract spooked buyers. The iShares Gold Trust ETF (IAU  ) fell 0.2%.

"Geopolitical tensions remain high but do not seem to be having a direct market influence as both gold and oil are trading lower," said Marc Chandler at Bannockburn Global.

Equity Losers In Sell-Off

Looking at the losers on the S&P 500 - including the Magnificent Seven stocks, which all lost between 1% and 5% - and it was a list of the best performers of 2023.

"I wouldn't have been surprised to see profit taking - you've got a lot of portfolio managers who underperformed their index, so they're re-orientating their portfolios towards a less hawkish Fed - they need to allocate towards stocks," said Tom Lee at Fundstrat, in an interview on CNBC on Tuesday.

The largest downturns on the S&P 500 on Tuesday were seen in the three cruise line operators: Norwegian Cruise Line Holdings (NCLH  ) fell 8.6%, Royal Caribbean Cruises (RCL  ) lost 7.2% and Carnival Corp (CCL  ) shed 6.7%.

During 2023, only three stocks - including Mag7 giants Nvidia (NVDA  ) up 227%, and Meta Platforms (META  ) up 172% - outperformed Royal Caribbean, which gained 128% over the year. Carnival wasn't far behind with an annual gain of 98%, while NCLH rose by 47%.

Another big story of 2023 - the growth of artificial intelligence - drove semiconductor stocks to cyclical highs, and many of these stocks were among Tuesday's big losers.

AMD (AMD  ) fell 6%, Intel (INTC  ) shed 4.9% and Applied Materials (AMAT  ) lost 4.8%.

What To Expect Ahead In 2024

Premarket trading on Wednesday indicated the likelihood of further equity losses - particularly in the stocks mentioned above.

But the selling has not been broad based. There were plenty of gainers, particularly in the pharmaceuticals, healthcare and financial sectors.

Capex has risen during 2023, indicating companies feel confident about their earnings growth in 2024 - and earnings will be the ultimate driver, along with Federal Reserve policy, as the year advances.

Thus, the fourth-quarter 2023 earnings season, which kicks off in a few weeks, will be key for investment decision-making as companies provide further details on their outlooks for the coming year.