January continued the positive stock market momentum. Microsoft continues to be the performance front runner with solid Q2 earnings. Alphabet and Apple received tepid market reactions. Meta was enthusiastically bought on a tremendous earnings print. Amazon also delivered sterling results. Though the markets had broadened out during the month, Technology continues to drive the overall market performance. Small-Caps continue to lag behind.
S&P 500: Jan +1.59% DOW: Jan +1.22%
NASDAQ: Jan +1.02% Russell 2000: Jan -3.93%
Sector Performance YTD:
Communication Services +8.9%
Consumer Discretionary -2.9%
Consumer Staples +1.0%
Energy +0.6%
Financials +2.6%
Healthcare +2.0%
Industrials -0.5%
Materials -3.6%
Real Estate -3.9%
Technology +5.9%
Utilities -3.4%
Current U.S. Treasury Yields:
6 Month Bill 5.23%
2 Year Note 4.45%
5 Year Note 4.11%
10 Year Note 4.15%
30 Year Note 4.33%
The Economy and the Fed:
Fed Chair Powell kept the lending rate at the same level. He reiterated that cuts would not begin in March but will happen at some point this year. The market traded down on the news. After getting caught in 2022 with the “transitory” stance, 2% inflation is still the target and Powell won’t deviate. Multiple cuts aren’t even on the table at this point.
Layoffs for January, at over 82,000, were the most since early 2023. The unemployment rate printed at 3.7%, slightly below the 3.8% estimate. Nonfarm payrolls came in at 353,000 for January, much higher than the 185,000 estimate. This strong labor market further strengthens the Fed’s wait and see stance. Job growth was widespread throughout the economy and wage growth showed strength. Q4 GDP was up 3.3% (annualized) staving off recession calls.
The global picture is worrisome. Germany is in recession, the UK is improving and may be able to cut rates in the Spring. France is a duplicate of the UK (3.9% inflation) but higher than the EU’s 3.1%. In Q4, Japan returned to growth but remains shaky as they end monetary stimulus.
China continues to struggle to get its economy on track. The Middle East problems have escalated with the U.S. response over the past few days. The Israel/Palestine conflict is no closer to a resolution. Lastly, the Ukraine/Russia war has intensified. These ongoing issues will maintain a persistent measure of market volatility.
Looking Forward:
How well the markets do in January is typically a good indicator for the rest of the investment year. Judging by the strong quarterly results reported thus far earnings are working. 72% of reported earnings have surprised to the upside, while 65% reported higher revenues compared to estimates.
Year-over-year comparisons are favorable over the next two quarters which will lend to continued market strength. This will help the market climb the proverbial “wall of worry” in 2024 as these market gains consolidate over the month of February. Money Markets, yielding 5%, remain productive as dry powder and a market volatility buffer. Treasury yields have pulled in but are still a portfolio component.
Technology continues to be the lead horse in market performance. We believe the market participation will further broaden out. The Consumer Discretionary, Healthcare and Financial sectors should add to positive performance. Energy, a 2023 laggard, should rebound. We still remain cautiously optimistic for a positive year.
GN&Co