CWG Investment Committee: January Tailwinds

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The bull market marched on in January with a 1.7% gain for the S&P 500 to a new all-time high. Growth stocks of the largest variety led the way, with long government bonds (ticker TLT) down 2.3% as rates rose while small caps (IWM) swooned -3.9%.   

Investors began January hesitant that the Q4 bull run could continue. Concerns have since been eased as economic data reports continue to surprise to the upside.  

The US economy added 350,000 jobs in January as the unemployment rate stayed at 3.7%, extending its streak to 24 months below 4%, which according to the Commerce Dept. is the longest stretch since 1960. Wage growth increased 0.6% from December, double the monthly estimate, putting year over year increase at 4.5%, well above the 4.1% forecast.  

The Fed said last Wednesday that it does not expect to lower its Fed Funds rate in March but will likely do so later in the year depending on the future inflation data.  

The U.S. economy remains resilient, as Q4 GDP saw an increase of 3.3% annualized. The Atlanta Fed sees 4.2% GDP in the first quarter of 2024.  

The 10-year note yield is 4.14%, up slightly on the year with the 2-year note at 4.45%. The yield curve is still inverted, signaling a possible recession. Six-month bills remain attractive while yielding 5.21%.  

Large cap growth continues to lead despite lofty valuations.  

Stocks are reacting to earnings with strong gains from big winners like Meta Platforms (formally Facebook) and big drops from disappointing reports like Humana. Small caps are more economic dependent than mega caps which have fortress balance sheets and moats around their business models.  

With rates expected to go lower as the year evolves, most forecasters see higher stock prices and rising earnings. The S&P 500 has rallied over 800 points off the October 26, 2023 lows. We would not be surprised by a pause in the upside run.  

Geopolitical concerns abound and a Presidential election lie ahead of us. News on both these fronts will likely be jolting to many observers.  

Investor sentiment returned to Bullish with 49.1% Bulls, 26.4% Neutral, and 24.5% Bears in the latest AAII survey. Investors naturally turn more positive as all-time highs are achieved in the S&P 500.  

The remaining eleven months will likely make 2024 a very interesting year.  

We wish you a happy remainder of winter!