January 2024 Market Insights

By: Allen Z. Thuma, CFA, CFP® - Senior Portfolio Manager & Research Analyst 

After a strong market return of 26.3% in 2023, the S&P 500 reached fresh closing and intra-day all-time highs this month, despite having a sluggish start to the new year. The Dow Jones Industrial Average also topped 38,000 for the first time. Treasury yields have rebounded a bit higher after the Fed walked back more accommodative (dovish) December commentary.

Stocks:

January has shown continued positive momentum in semiconductor (chip) stocks, as bullish analyst commentary from generative AI offerings has boosted many Technology sector companies. So far through January 25, the S&P 500 has increased by roughly 2.7%, the SPDR Technology Sector ETF (XLK) has risen by about 6%, and the VanEck Semiconductor ETF (SMH) has climbed 10% through January 25. There was a slew of analyst semiconductor upgrades and company earnings reports released emphasizing the growth prospects of AI. The S&P 500 finished the year with forward price-to-earnings (P/E) multiples of 27x for the top ten stocks in the index, which compares to the 17x multiple for the rest of the contributors. The P/E ratio shows how much investors are willing to pay (P) for each dollar a company earns (E). The forward P/E of the S&P 500 is about 19.5x, which compares to the 5yr average of just below 19x and 10yr average of 17.6x. 

Economy:

The market recently digested the first read of Q4 GDP of 3.3%, which topped expectations of 2.0%. ISM manufacturing came in stronger than last month, but it has remained below 50 (indicating contraction) for 14 straight months. The ADP employment report showed an increase of 164,000 private sector jobs in December. Both private and nonfarm payrolls improved from last month and were higher than expected. The unemployment rate remains strong at 3.7%. Core CPI (inflation excluding food & energy) of 3.9% has cooled but remains above the Fed’s long-term target of 2%. U.S. retail sales and import prices both came in higher than expected, which further tamed expectations of sooner Fed rate cuts. Mortgage applications for the week ending 1/5/24 increased 9.9% for the largest weekly gain in nearly a year. Mortgage applications increased 2.1% year-over-year (Y/Y), ending what was a 148-week record streak of declines in the Y/Y reading. Strength in the report was driven primarily by mortgage refinances, which increased 19% on the week and 30% Y/Y.

Bonds & Fed:

There is now a 97% chance that rates will remain unchanged at the January Fed meeting, with a 50% chance for a cut in March (down from 90% in late December). After yielding nearly 5% in October, the yields on 5-year and 10-year Treasury bonds were both below 3.9% in late December and have increased back above 4% recently. 

Buckingham is here for you:

Buckingham Advisors continues to welcome new households and small businesses to our Family of Clients! Thank you to our clients for your referrals and continued support. Our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please send this issue on to others. To get in touch directly, please use the following link: https://mybuckingham.com/contact.

Thank you for your continued trust and support.

Allen Z. Thuma, CFA, CFP®
Senior Portfolio Manager & Research Analyst

RISKS AND IMPORTANT CONSIDERATIONS

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass.  This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual.  All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period.  Equity investments are subject to company specific and market risks.  Equities may decline in response to adverse company news, industry developments, or economic data.  Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall.  Past performance is no guarantee of future results.