After a challenging market environment for much of 2022, January flipped the script. The Nasdaq, in particular, posted some very impressive numbers, up 11%, its best start to the year since January 2001 (WSJ, Jan. 31). As the Journal went on to note, when the Nasdaq has gained 10% or more in January it has gone on to average a 14% return through the rest of the year, the exception being the crash period, when it lost -30%.

The other major indexes were similarly buoyant, as were markets overseas. The S&P gained 6.2%, the Dow Jones 2.8%, and the Stoxx Europe 6.7%. European stocks generally outperformed during the month (WSJ, Jan. 10), supported by a strengthening Euro. Asian markets were also strong as China continued its reopening. Hong Kong’s Hang Seng Index was up 10% in January, while Japan’s Nikkei and China’s Shanghai Composite climbed more than 4.7% (WSJ, Jan. 31).

In the US, a rising sense of optimism that marked the start of the New Year was driven largely by a shift in the narrative around inflation and interest rates, although hope for a soft landing faced tests as conflicting data emerged. Despite job cut announcements from companies such as Alphabet, Microsoft, FedEx and others (WSJ Jan. 18), employment remained strong – the December report showed an addition of 233,000 jobs (WSJ, Jan. 6) while the January number of new jobs exceeded 500,000. Other areas of the economy signaled waning momentum. Wage growth, a key Federal Reserve concern, showed signs of moderation. Private sector earnings rose 4.6% in December, down from 4.8% in November (WSJ, Jan. 6). December retail sales fell -1.1% (WSJ, Jan. 18).

On the positive side, there was progress to be seen in the long-awaited disentanglement of the supply chain as the cost of container shipping reverted to pre-Covid levels (Bloomberg, Jan. 5). Inflation data continued to trend down, easing pressure on the Fed to aggressively raise rates. The Consumer Price Index was up 6.5% in December, down from 7.1% the previous month and well off the 9.1% peak. It was the sixth straight month of declines (WSJ Jan. 12). The Personal Consumption Expenditures index, the Fed’s favored inflation gauge, also fell month to month, up 5.0% in December compared to 5.5% in November (WSJ, Jan. 27). Fourth quarter GDP growth came in a 2.9% (annualized) against 3.2% for the prior quarter as both consumer spending and business investment showed signs of weakening (WSJ, Jan. 26).


In other news

Bonds rallied and yields fell to start the year. The price of gold rose to around $1,930 an ounce. The Wall Street Journal Dollar Index fell, off about 10% from its 52-week high (WSJ, Jan. 26). Deal advisors, ever optimistic, predicted a pickup in mergers & acquisition activity, as equity markets stabilized, and debt financing looked to become more available (WSJ, Jan. 5).

Earnings season again kicked off, and the mood was dour. FactSet predicted that 4Q profits for the S&P 500 would decline by a little over -4.0% (WSJ, Jan. 8). In actuality, S&P 500 earnings were down -5.0% through January 27 (with 29% of companies reporting; FactSet, Jan. 27). Stocks generally managed to ignore this weakness, perhaps looking beyond the numbers to the next turn in Fed policy.

For their part, Fed Chairman Powell and his colleagues continued to telegraph a further slowing in the rise of the Fed funds rate (they followed through on February 1 with a 25 basis point increase, marking a significant slowdown in their pace of rate increases from 4 consecutive 75 basis point hikes, to 50 basis points at their last meeting). Perhaps more significantly, the Fed Chairman added in his comments, “We can now say, for the first time, that the disinflationary process has started. We can see that.” (Yahoo Finance, Feb. 2)

In response, stocks rallied sharply, anticipating an end to tightening – and the possibility that rates might move lower as the year goes along. The hard-hit tech sector was particularly enthusiastic; the Nasdaq was up 2.0% by the end of the day (CNBC, Feb. 1).

Importantly, while January may have been a month that “flipped the script,” it’s still far from clear whether a recession can be avoided in the short-term. However, one thing is clear: investors are cautiously optimistic that the path of interest rates will stabilize or decrease. This stands at odds with the Fed, which has maintained that the risks of inaction or undershooting far outweigh the risks of overtightening, as their overriding goal is to contain inflation from running out of control. The outcome of this debate, while decidedly uncertain, will have major implications for markets in the months ahead. 


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Nasdaq is used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange The Nasdaq Composite contains all of the companies that trade on the Nasdaq. Most are technology and internet-related, but there are financial, consumer, biotech, and industrial companies as well.

The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.

The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.

The Stoxx Europe or the Stoxx Europe 600 index also called the STOXX 600 is an indicator of the performance of the European stock market. It measures the performance of large mid and small-cap companies across 17 countries in Europe.

The Shanghai Composite, the SSE Composite, short for the Shanghai Stock Exchange Composite Index, is a stock market composite made up of all the A-shares and B-shares that trade on the Shanghai Stock Exchange (SSE).

The Nikkei is the leading and most-respected index of Japanese stocks. It is a price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Personal Consumption Expenditures Price Index (PCEP) is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

The Wall Street Journal Dollar Index is an index of the value of the U.S. dollar relative to 16 foreign currencies

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