Commentary for January, 2024

Hello all - we hope your first month of 2024 was a good one.  

January was a good one for stocks.  For the month, the Dow rose 1.2%, the S&P 500 gained 1.6%, and for a change, the Nasdaq, which has a higher concentration of tech stocks, was the laggard with a 1.0% gain. 

 

Here’s a look at how the markets moved this month:

“As goes January, so goes the year.”

This is an old Wall Street saying that basically means if the market is up in January, it will be up for the year, too.  How accurate is this?  Going back 100 years, it’s been true just about 65% of the time.  While it’s better than 50/50, we still wouldn’t put much faith in it!

Here’s a look at how the different sectors performed this month.

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FED

A big reason for the market rise last year was the Fed.  They indicated they would begin lowering interest rates after years of record rate hikes.  That means borrowing costs would be lower, which is something stocks like.  

However, this month the central banks intimated to not get too excited.  While they may lower rates this year, it probably won’t be as much as investors expect.  

Here’s a few headlines we saw this month:

A Fed meeting at the end of the month gave little indication of when lower rates can be expected and the market saw some weakness on this.

 

We aren’t so sure a rate cut is coming in the next few months as many investors expect.  This could set the market up for more disappointment as rate cuts never materialize.

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EARNINGS

We’re about halfway through the earnings reports of companies in the S&P 500.  The earnings haven’t been bad, but there are some pockets of weakness.  

The big story last year was tech stocks, which saw massive gains based on the hype around AI.  That has raised expectations for these stocks.  So far, the AI hype isn’t paying off for these tech companies as their earnings underwhelm.  Since these stocks led the market up, be careful that disappointments in this sector can lead the market down, too. 

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INFLATION

Inflation has been trending lower over the last roughly two years, which is a key economic metric the Fed looks at.  However, the inflation level seems to have stalled over the last several months.   This is not something the Fed likes to see.  

 

Inflation continues to rise every month, too.  Its not rising as fast as it did immediately post-Covid, but prices ARE still rising.

Excluding energy and food, which economists call the “core” measurement, inflation is still solidly rising every month.

One bright spot for inflation is the PPI, which is the inflation at the business level.  The PPI has been lower for three-straight months now. This is a good sign – first prices come down for businesses, then eventually for consumers.  This suggests that lower inflation should be in our future.  Hopefully.

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OTHER ECONOMIC DATA

Economic data released this month was mixed.  Overall, the economy still looks healthy, but there are pockets of concern.  We’re also seeing a lot of ‘bottoming’ patterns in the charts, where it suggests a change in trends.

First is the GDP report for the fourth quarter, which shows the strength of the overall economy.  The report was a nice surprise, showing a decent gain.

Its worth noting that a lot of the gains came from government spending, which is usually due to increased debt and is also usually not productive. 

Next, we’ll look at the leading economic indicators, which we’ve talked about for months.  This index combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index has been lower for 21-straight months now.  It has never gone this low without a recession following, although this is something we’ve been saying for many months and a recession still hasn’t come.

Here are the various indicators used in the leading indicator index:

The manufacturing sector of our economy still appears to be contracting, though it is improving, while the services sector showed weakening.

Retail sales ticked higher last month:

Durable goods (these are items with a longer life, like a phone or refrigerator) showed another gain, too.

Consumer confidence moved sharply higher:

Small business optimism was slightly higher, too:

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Where does the market go from here?

Our indicators show that the market remains very expensive here.  But it remains resilient, too.  We wouldn’t be sellers at this time, but aren’t excited about putting new money in, either. 

 

This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.