U.S. stocks ended January in upbeat fashion with the S&P 500 index progressing nearly +6.3%, fully erasing its -5.76% December decline and capped its strongest first-month start to a year since 2019!
What was most notable in January was the rebirth of growth investments. During most of 2022, growth stocks were beaten down and left for dead. However, in January, we saw sectors like Technology (Apple/Microsoft/etc) and Consumer Discretionary (Tesla/Amazon/etc) led the rally, providing hope that the worst is behind us.
We also witnessed a positive turn in the fixed-income markets as well. Following a dramatic year of interest rate increases, which led to one of the worst years for bond returns on record, January 2023 looked different as yields move lower. Investment-grade bonds advanced +3.1%, measured by the Bloomberg U.S. Aggregate Bond Index while Bloomberg’s U.S. High Yield Bond Index gained +3.81% and Municipal bonds (tax-free bonds) climbed +2.87%.
Despite Wall Street’s improving sentiment and rising hopes for a recession-avoiding soft landing, there remains an active debate about whether January’s broad advances represent a tangible inflection point or yet another bear-market rally. January gains were largely driven by continuing signs of easing inflation and China’s push to reopen after scaling back its strict COVID-zero restrictions. Corporate earnings and improving conditions in Europe also added to the positivity.
While we know things can change quickly in this market, there is an old market theory, popularized by the Stock Trader's Almanac that claims that as January goes, so goes the full year. Known as the January Barometer, it looks at January’s performance and what could happen in the next 11 months. Historically speaking, when the first month of the year is positive, the rest of the year is up nearly 12% on average and higher 86% of the time.
We will keep our eyes on the market and as always, let you know if any changes are need.