January 2024 Market Commentary

Markets

It was a nice start to 2024 with the S&P 500 closing out the first month with a positive +1.58% increase, while in Canada the S&P/TSX managed to eek out a +0.30% bump in January. Headline payrolls in the U.S. of 353,000 was well ahead of the 177,000 consensuses, marking the highest level since Jan-23. On another positive note, the unemployment rate remained unchanged at 3.7% vs. the forecast for an uptick of 0.1 percentage points to 3.8%. Following the news, the policy-sensitive 2-year yield jumped ~8 basis points to 4.32% on the expectation that the hot labour market would push back against a Fed rate cut path. Powell’s remarks at the most recent meeting can be summarized by his statement regarding inflation, “we’re trying to get comfortable and gain confidence that inflation is on a sustainable path down toward 2%,” and he went on to add that, “based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting… but that’s to be seen.” This means the Federal Reserve is leaving its options open as it assesses the path ahead for interest rates and when to implement cuts. We will note that before the meeting was over, he did comment that while the markets have digested six months of good data, uncertainties linger, and risks could accelerate inflation. Our speculation is that should the conflict in the middle east widen, the potential for disruptions in oil/gas supply could very well be one of those risks that could accelerate inflation. Something to keep an eye on for sure.

In general, market news and sentiment has continued to improve and investors are now reacting with confidence, not fear. Non-Farm payroll, consumer confidence, ISM new orders and production are all bright spots heading into 2024. In the last quarter of 2023, we saw a huge improvement in earnings season metrics, with the beat rate jumping to ~75% from 69%. All five big tech names beat on the top and bottom-line. All this momentum is playing into the “magnificent 7” hype with positive takeaways for AI enhancements, expense control/productivity initiatives, and waning cloud optimization pressures. In the broader market, more signs of strong leisure travel demand from results in Royal Caribbean, and the sell-side surveys highlighting that a spending recovery followed the weather-related pressures in early January. Although regional bank contagion concerns are growing again, the markets appear to be brushing it off with some positive spin surrounding potential (Fed) liquidity support for risk assets. On a final note, it appears the corporate buyback window has started to reopen, and there has been more sell-side talk about an expected ramp up in buyback announcements. All good for equity markets.

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