The report card is in. Despite high interest rates, elevated inflation and a challenging market environment, U.S. gross domestic product grew a strong 3.1% in 2023. And in the month since, consumer spending has continued to be robust, unemployment has remained low and the S&P 500 recorded new highs.

Some took this as bad news. Supported by this resilient economy, the Federal Reserve (Fed) elected to hold interest rates steady at the first Federal Open Market Committee meeting of the year on January 31.

“January was déjà vu, continuing the narrative of late last year with economic resilience, moderating inflation, expectations that the Fed will soon cut interest rates and a mega-cap Tech-led equity rally,” said Raymond James Chief Investment Officer Larry Adam.

“However, with the S&P 500 rallying about 20% from the late-October lows, a period of volatility and consolidation is likely as the market has priced in elevated economic and equity market expectations. Much of the good news has already been priced in.”    

We’ll dig into more details below, but first, let’s look at where we stand one month into 2024.

*Performance reflects index values as of market close on January 31, 2024. Bloomberg Aggregate Bond and MSCI EAFE figures reflect January 30, 2024, closing values.

Jobs, manufacturing sending mixed messages on U.S. economy

At 2.7 million, 2023’s total nonfarm employment gains were a far cry from the breakneck pace of 2022 (4.8 million), but a more-than-expected increase of 216,000 jobs in December capped a strong year for employment growth overall. However, manufacturing stayed in contraction territory and the Leading Economic Index, a proxy for the future performance of the U.S. economy, declined for the 22nd consecutive month.

Tech and comms push equities higher

January brought new record highs to the S&P 500 as a narrow group of technology and communication services companies led the way, while the rest of the index was largely flat. As fourth quarter earnings season progresses, investors will be scrutinizing company commentary and watching price reactions for signs of broader market participation. We believe equities can climb higher over the next 12 months as the Fed likely cuts rates, bond yields trend lower, and any looming recession remains mild.

Yields across fixed income asset classes climb

Bond yields bounced back in January after steadily declining from last October’s peak when the market determined the Fed was done tightening. Day-to-day volatility remains high and the Treasury curve inverted, yet the corporate curve remains relatively flat and elevated while the municipal curve steadily upward sloping 10 years and out, creating varying income opportunities throughout maturity ranges.

Data from China keeps oil prices subdued

Although up year-to-date, oil prices are ending January in the bottom half of the 52-week range, with China being a key factor. China’s gross domestic product growth rate of 5.2% was among its weakest over the past three decades, and the outlook for 2024 is mixed. China’s 2023 population drop of 2 million people reflects the fact that its birthrate is below replacement level. The part of the Chinese economy that’s booming? Electric vehicles. Nearly 40% of China’s light-duty auto sales in 2023 were electric – by far the highest percentage among the G20 major economies.

Market paradox in Germany, uncertainty in the UK

The German DAX index surged to an all-time high in January, which is remarkable against a backdrop of persistently downbeat activity and high unemployment. That said, what has driven financial market performance are lower energy prices and the expectation that the European Central Bank might soon pivot to a looser monetary policy stance. In the U.K., subdued performance of financial assets may be a result of uncertainty about a possible change of administration within the next 12 months.

Encouraging progress on D.C. tax deal

In January, Congress made headway on key fiscal priorities, including a potential $78 billion tax package (combining an expansion of the Child Tax Credit with corporate tax breaks) and the long-debated $100+ billion supplementary border security and defense deal. Meanwhile, the near certainty of a Trump-Biden rematch may dampen the volatility that historically hangs over the first quarter of an election year.

The bottom line

When reality doesn’t align with expectations – along with the friction that uncertainty over the timing of interest rate cuts and a potential recession could create – market volatility typically follows. The resilience of the U.S. economy will likely be a continuing theme in the months to come, as will be the Fed’s timing. In the meantime, we will continue our steadfast approach to long-term investing, always with an eye toward risk.

As ever, we will remain committed to the pursuit of your financial goals and thank you for your continued trust in our guidance. If you have any questions regarding this recap – or any other topic – please reach out at your earliest convenience.


Glen D. Smith, CFP®, CRPC®
Chief Executive Officer | Chief Investment Officer | Founder

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Chief Investment Office and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australasia and Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small-cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.  An investment cannot be made in these indexes. The performance mentioned does not include fees and charges, which would reduce an investor’s returns. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation, and may not be suitable for all investors. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.

Material created by Raymond James for use by its advisors.

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