January Market Recap
Optimism is trending on Wall Street.
As bad a year as 2022 was for stocks, equities began the new year by bucking the downtrend and giving investors legitimate hope that 2023 will be different. The S&P 500 increased 6.2% in January. Only once in the last 33 years (2019) has the benchmark gotten off to a stronger start.
Generally speaking, the categories of the market that performed the worst last year bounced the most last month. The NASDAQ (-33.1% last year) spiked 10.7% in January, its best opening month since 2001. Small-cap stocks, as measured by the Russell 2000, gained 9.7%.
You might be surprised that three of the 11 equity sectors in the S&P 500 were negative in January. Utilities (-2.0%), Health Care (-2.0%), and Consumer Staples (-1.1%) all moved lower. Those were three of the four best-performing sectors last year. Consumer Discretionary (+15.0%) and Communication Services (+14.2%) were in a league of their own last month.
When markets closed on January 31, the S&P 500 sat 15% below its all-time high and 17% above its October 2022 low. We are quickly approaching the numerical midway point (S&P: 4,155) between those two extremes. Late August was the last time the S&P reached this significant level.
Inflation remains a topic worthy of attention, but the headlines these days are about how quickly inflation is falling as opposed to how high it might rise. The most recent Consumer Price Index (CPI) released January 12 showed annual inflation of 6.5%. CPI has declined in each of the last six months. It’s no coincidence that equity prices have accelerated as inflation has slowed.
The Federal Reserve has responded by moderating the size of its rate increases. Fed Chairman Jerome Powell announced a 0.25% hike to the Fed Funds Rate on February 1, and ignited the latest stock rally when he declared, “We can now say for the first time that the disinflationary process has started.”
One more rate hike seems likely in March. We expect the Fed to hit the pause button shortly thereafter. Many have speculated the Fed could cut rates sometime in 2023, although Powell said “it would not be appropriate” to cut rates this year based upon the Fed’s current forecasts for the US economy.
Despite the market’s sudden strength, Q4 corporate earnings have been relatively grim so far. With less than half of S&P 500 companies having reported, earnings are on pace to decline by roughly 5% from a year earlier. As of December 31, consensus estimates called for declines of 3.2%.
International stocks outperformed in January, bolstered by a weaker US dollar and China’s economic reopening. It is true that pent-up production and consumer spending in China could eventually have inflationary consequences, but in the short-term investors have been encouraged by the world’s second-largest economy coming back online.
Non-US Developed Equities climbed 9% in January. Emerging Market equities increased 9.1%.
Bonds also generated positive returns last month following the worst calendar year in history for the Bloomberg US Aggregate Bond index. “The Agg” gained 3.3% in January. 10-year US Treasury yields ended January at 3.53% (down from 3.88% at year-end).
Gold remains in an exceptionally strong rally, rising 5.8% last month. Gold prices have gained nearly 20% in the last three months. Oil prices, on the other hand, are moving in the opposite direction. West Texas Intermediate Crude fell 4.4% and ended January at $76.70 per barrel.
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser. Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.
Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets. No strategy assures success or protects against loss. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.