US Markets
Stocks saw modest gains last month as positive economic data and upbeat Q4 corporate reports helped support prices.
The Dow Jones Industrial Average advanced 1.22%, while the Standard & Poor’s (S&P) 500 Index gained 1.59%. The Nasdaq Composite, which led throughout 2023, rose 1.02%.1
Bumpy Start
It was not a straight line for stocks in January. As the month began, investors took a breath during the end-of-year rally to question the Federal Reserve’s next move on interest rates.
Where Is Goldilocks?
By mid-month, there was plenty of news to suggest a “Goldilocks” economy was taking shape indicating economic growth that was neither too “hot” nor too “cold.”
Many of the headlines were upside surprises. Unexpected news on the jobs market was followed by December retail sales, which came in better than expected. The December inflation report was mixed, while the Q4 report on gross domestic product (GDP) topped economists’ expectations.2,3,4,5
Mixed Signals from the Fed
As expected, the Fed kept rates unchanged at its Federal Open Market Committee meeting, which concluded on January 31. In its summary report, some investors heard more neutral language that gave the Fed increased flexibility to cut rates in the coming months. Others, however, believe this would be the case only if the Fed believes the danger of inflation has decreased. The news took the wind out of stocks’ sails, modestly curtailing gains for the month.6
What Investors May Be Talking About in February
At its December 2023 and January 2024 meetings, the Federal Reserve made it clear that it is now leaning away from rate hikes and toward rate cuts as it attempts to steer the economy to a soft landing this year. Therefore, in the month ahead, investors are expected to focus on two factors that may influence stock prices.
The first will be any signs of tailwinds in company fundamentals as the earnings season continues to unfold. The second will be any indication of a pickup in market volatility, which can happen as the economy transitions from a monetary tightening to a lower interest rate environment.
Fed officials are expected to make multiple appearances in February, which may indicate how members are seeing inflation and the outlook for rates. The next two-day Fed meeting will not be until mid-March.8
World Markets
The Morgan Stanley Capital International (MSCI) EAFE Index rose 0.54% in January—a modest rally that trailed the tech-driven gains in the U.S.9
European stocks were mixed. France picked up 1.51%, and Germany rose 0.91%. However, the United Kingdom fell 1.33% while Spain slipped 0.24%.10
A similar pattern was evident in the Pacific Rim markets. Japan’s Nikkei index (+8.43%) and Australia’s ASX 200 (+1.18%) notched gains, while China’s Hang Seng Index (-9.16%) and Korea’s KOSPI (-5.96%) lost ground.11
The Fed
The Federal Open Market Committee left rates unchanged at its January 2024 meeting. The Fed used more neutral language in their policy document, giving them more flexibility to cut rates in the coming months.
However, the Fed qualified this by saying that cuts were not automatic and that it would consider them only if inflation dangers abated. Financial markets were somewhat unsettled by the Fed’s updated language.21
Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
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1. WSJ.com, January 31, 2024
2. MarketWatch.com, January 17, 2024
3. CNBC.com, January 18, 2024
4. WSJ.com, January 18, 2024
5. CNBC.com, January 25, 2024
6. WSJ.com, January 31, 2024
7. SectorSPDR.com, January 31, 2024
8. StLouisFed.org, 2024
9. MSCI.com, January 31, 2024
10. MSCI.com, January 31, 2024
11. MSCI.com, January 31, 2024
12. CNBC.com, January 25, 2024
13. CNBC.com, January 5, 2024
14. CNBC.com, January 17, 2024
15. Statista.com, January 26, 2024
16. Reuters.com, January 18, 2024
17. CNBC.com, January 19, 2024
18. NationalAssociationofHomeBuilders.org, January 25, 2024
19. WSJ.com, January 11, 2024
20. Census.gov, January 25, 2024
21. WSJ.com, January 31, 2024
22. Safnow.org, August 2023
23. Safnow.org, August 2023
24. 1800Flowers.com, February 2024
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