Clearview Portfolio Consulting January 2024 Recap

Key Points:

  • Stocks advanced in January but not all sectors of the market moved higher.
  • The market is expecting aggressive rate cuts for this year, but the timing and size of those cuts remains uncertain.
  • Bonds could have a strong year with high starting yields and the prospect of lower rates.

Markets were mixed in January as bulls look to an earnings recovery and a resilient consumer while bears worry about the long and variable lags of higher interest rates.  The S&P500 hit an all-time high in January, advancing 1.68%.  The gains were mixed as sectors diverged. Leading stocks higher were communication services (+5.0%), technology (+4.0%) and financials (+3.0%).  Real estate (-4.7%), materials (-3.9%) and consumer discretionary (-3.5%) moved lower.  Growth outperformed value while small caps dropped 3.9% after gaining over 20% in the final two months of 2023.  Developed international stocks remained flat as the European economy slows while emerging markets fell 4.6%.  Chinese equities continue to fall, dropping 10.6% for the month as one of their largest property developers was ordered to liquidate after defaulting on their debt.

The uncertainty about the economy and the timing and level of future rate cuts are dominating the headlines.  Expectations for aggressive easing this year are causing volatility in the markets as the Fed seems less willing to start cutting as early as the market hopes.  While inflation continues to trend lower, it is still above the long-term target of 2%. Two global conflicts are weighing on supply chains which could prove inflationary.  Shipping containers being diverted around the Red Sea are causing delays and higher rates.  The benefits of onshoring and nearshoring in North America continue to grow.  The labor market has been rather resilient over the past two years but announced job cuts are growing.  Big companies like UPS, Blackrock and Microsoft are among many scaling back to become more efficient.  While this usually is an indicator of an economic slowdown, over 8 million jobs remain unfilled.  The incorporation of artificial intelligence in many sectors of the economy is expected to increase productivity but could be disruptive to the labor market. 

Bonds were flat during January as long-dated Treasury yields inched up.  Short-term yields remain higher than long-term yields suggesting the US economy will end up in a recession.  Bonds typically do well in periods where the Federal Reserve has paused their rate hike campaigns and begin easing interest rates (bond prices move in opposite directions as yields).  2024 could prove to be a good year in the bond market if the Fed cuts rates and defaults remain low.  Money market assets are at all-time highs, but their attractive yields will fall as the Fed eventually cuts interest rates. The flow into stocks and bonds could be a tailwind for risk assets. Balanced investors are usually best served by sticking to their long-term asset allocations and avoid trying to time the markets.

Sources: Morningstar Direct, Wall Street Journal,