Market Update

Market Review – Wintery Mix Hits Markets in January

By February 9, 2024No Comments

Wintery Mix Hits Markets in January

Changing interest rate expectations impact markets at the start of the year

Key Observations

  • Markets were mixed in January, with U.S. large cap equities leading the way while non-U.S. equities and fixed income produced lackluster returns.
  • Market sentiment shifted and optimism on the potential for a soft-landing grew. Expectations for a Federal Reserve rate cut early in 2024 shifted significantly over the course of the month.
  • Economic data has delivered above expectations of late, but potential headwinds remain and preparing for rather than predicting a downturn, we believe, is the prudent approach.

Market Recap

The New Year began with mixed results across asset classes. Growing optimism around the potential for a soft-landing, expectations on central bank policy, and turmoil in the Red Sea all had an impact on returns. Large cap domestic equities were the winner in January, with the S&P 500 returning 1.7%. The “Magnificent 7” once again helped push the top-heavy S&P 500 Index higher, accounting for over 20% of the return for the month and exacerbated the dispersion between the S&P 500’s equal weighted sibling (see chart below). Small cap stocks struggled, with negative returns across almost every sector within the index. Despite the tailwind of more favorable economic conditions, the shift in interest rate expectations was the main drag on the small cap space as investors lowered their outlook for the first rate cut to happen in March.

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