OUTLOOK: January got the year off to a strong start with tech and US leadership continuing and China lagging. The S&P 500 crowned its rebound with a first new all-time-high in two years. January’s 1.6% return was above the long term average 1.3% and annualises at over 20%. The twin bull market pillars are in place. Of lower inflation and coming rate cuts. And an economic soft landing and reaccelerating earnings. Whilst new highs typically beget new highs. February will be driven by remaining big tech earnings, potential sub-3% US inflation, and heavy political calendar. We see a positive year but with smaller, broader, and more back-ended returns.
JANUARY: Leadership fell back in line with that seen over 2023, with Japan and US strength, and Chinese weakness. Alongside communications and IT momentum and real estate lagging. Sentiment improved, but not across the board. The VIX is near lows but fund outflows have continued and retail sentiment is only average. 10-year bond yields inched up as central banks pushed back against aggressive rate cut expectations. This benefited the US dollar, with the JPY and SEK leading weakness. Oil surged on rising Red sea tensions and late-month China stimulus measures. Bitcoin round-tripped after the spot ETF approval, digesting big 2023 gains.
FEBRUARY: Earnings, inflation, and politics are the key monthly drivers (see table). It’s typically the third best performance month of the year, with a median 1.3% return. The tech-led market rally will be tested by earnings season, book-ended by Apple (AAPL) and Nvidia (NVDA), with Magnificent-7 concentration at records. The most important number in markets, US inflation, may dip below 3% for the first time and reinforce coming interest rate cuts. The politics-heavy 2024 rolls into the US Democratic primary kick-off and Indonesia’s election. China’s long new year holiday starts the Year of the Dragon as authorities prepare bigger and broader stimulus.
All data, figures & charts are valid as of 31/01/2024.