In almost every January report over the last 3 years, it has begun with my excitement to “turn the page” from the prior year but, maybe I am alone in this feeling after the strong 2023 performance we saw in the markets, I am turning the page just a little slower this year. It could just be the unknown outcome of the interest rate and inflation battle we have endured for almost 2 years or maybe it is because of the continuing unfolding events in Israel and Ukraine. Nevertheless, as we continue our journey through one of the most interesting periods of modern history, since we began navigating the Covid Pandemic in March of 2020, there never seems to be a defining “settled moment”.
The markets in January seemed to mirror my “slight” hesitancy to turn the page as the New Year kicked off. The month began with the overall markets slumping or pausing as investors contemplated the Federal Reserve’s next move and what the economic figures (tea leaves) would tell us. Well, the data began flowing in which allowed investors and the markets to take their collective foot off the “brake." We saw 4th Quarter GDP growth of +3.3% and the unemployment data for December came in quite strong as employers added 216,000 jobs. These two positive points along with higher-than-expected retail sales figures allowed the markets to recover from the beginning of the month’s slump and push a little bit higher.
We saw the DOW Jones Index finish up for the first month of the year with a +1.22%, along with the Nasdaq Index clock in with a positive return of +1.02%. The sectors that benefited the most in the month were Financials +3.09%, Communication Services +4.43% and Technology +2.70%. The sectors which fared the worst were Real Estate -4.82%, Consumer Discretionary -4.41% and Utilities -2.97%.
In looking forward: With the Federal Reserve holding interest rates unchanged at the end of January, this leaves everyone waiting to digest any new data as it becomes available in the hope of understanding the rate path forward. We will have an opportunity to hear from many Fed Board members in February and we do not have the next 2-day FOMC meeting until March. What history does tell us is that when we do reach the point of the Federal Reserve cutting rates and moving to a more accommodative position, we will expect to see an increase in volatility and then we can navigate that new cycle.
