Market Insights

Stocks rose for a third straight month in January, but some investors may worry most of the good news is priced in for now.

The S&P 500 advanced 1.6 percent between December 29 and January 31. At one point it was up as much as 3.4 percent, but fell sharply to end the month. The Nasdaq-100 and Dow Jones Industrial Average also climbed similar amounts. All three benchmarks also established new highs.

Investors entered the year riding a wave of optimism after inflation eased in late 2023. Major technology stocks like Microsoft (MSFT) and Nvidia (NVDA) surged to new records on optimism about Artificial Intelligence. However investors took profits and “sold the news” once earnings came out, dragging prices lower.

Most economic news was stronger than expected, including job growth, gross domestic product (GDP) and retail sales. While that’s positive for sentiment in the longer run, it gives the Federal Reserve less reason to cut interest rates. That contributed to the late-January pullback.

There was also some noteworthy news for big large growth stocks. MSFT edged ahead of Apple (AAPL) as the world’s most valuable company. Interesting, MSFT has broken out above its 2023 highs while AAPL is still below its old peaks. That may suggest longer-term momentum favors the software giant.

Tesla (TSLA) also had its biggest monthly drop since December 2022 after missing estimates and warning of lower growth. Other companies associated with green energy, like Enphase Energy (ENPH) and Albemarle (ALB), were among big decliners last month.

Big Movers in January

Sector Watch

Key Economic Events in January

Below are some key economic events from last month.

• Job growth, unemployment beat estimates: The U.S. added 216,000 jobs in December, beating the 170,000 forecast. Unemployment was also lower than expected. (1/5)
• Retail sales beat again: Retail sales increased by 0.6 percent overall in December and 0.4 percent excluding automobiles. Both readings were double consensus. It was the sixth straight month that retail sales beat estimates. (1/7)
• Historic rebound in consumer sentiment: Consumer sentiment rose more than expected to its highest level since July 2021. The index has had its biggest two-month increase since 1991 as inflation worries ease. (1/19)
• Economic growth beats estimates by a wide margin: Gross domestic product expanded 3.3 percent in the third quarter, well ahead of the 2 percent forecast. Consumer and government spending helped drive the increase. (1/25)

What Experts Are Saying

Below are some noteworthy commentaries.

• Market strategists raised their targets for the S&P 500, expecting that lower inflation will reduce interest rates. Wells Fargo hiked its estimate from 4,800 to 5,000 (1/10). UBS is looking for a move to 5,150 versus its earlier projection of 4,850 (1/16).
• Inflation might get stuck at 3 percent, according to Mohamed El-Erian of Allianz. He cited higher shipping costs because of Red Sea disruptions, a tight labor market and less chance of goods prices falling. El-Erian thinks the Federal Reserve will wait until the summer before lowering interest rates. (1/12)
• Inflationary trends are slowing as rental costs subside, Morgan Stanley said. The investment bank lowered its 2024 estimate for the core personal consumption expenditures (PCE) index from 2.3 percent to 2.2 percent. It sees quicker rent drops starting in July. (1/24)
• Auto-lending data suggests older buyers are losing interest in electric vehicles, according to Bank of America. Hybrid vehicles were expected to benefit from the trend, which is associated with costs and limited EV range. Bank of America now sees lower uptake of EVs and market share through the end of the decade. (1/25)
• Payroll growth could slow to under 50,000 jobs per month by mid-2024, JPMorgan economist Michael Feroli forecast. That would lift the unemployment rate above 4 percent and let the Fed cut interest rates in June. He said strong inventory growth in the fourth quarter will reduce demand in the current quarter. (1/25)

Popular Futures Contracts in January

Newsworthy Events This Month

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