After an extremely strong rally to finish off 2023, stock and bond markets started the year off flat to slightly negative. Asset classes which had performed best in the last two months of 2023 experienced slightly larger pullbacks, but still delivered the biggest gains if we look over a three-month period from November 2023 through January 2023.
The end of January brought the release of monthly economic data, a Federal Reserve meeting, and earnings announcements from the Magnificent Seven, the largest U.S. tech stocks which powered market returns in 2023. The overall takeaway was clear: The U.S. economy remains surprisingly strong, continuing to defy predictions. Wage and job growth in January far exceeded expectations and numbers from November and December were revised upward. Five of the Magnificent Seven delivered higher than anticipated earnings, seemingly justifying their continued rise. The big exception has been Tesla, which was down nearly 25% in January. A good reminder of the risks and volatility that concentration brings.
The positive economic news led to the Federal Reserve’s announcement that it will continue to pause any changes to interest rates for the foreseeable future. With the Fed’s signal, the market was challenged to justify its anticipated rate cuts in the second half of the year, leading to a pullback across most market sectors excluding U.S. growth stocks. This result is consistent with the prevailing narrative that higher-for-longer interest rates will preferentially hurt small businesses, real estate, and the financial sector, and will spare the largest tech stocks whose fortunes will be boosted by AI. Given that markets and the brightest economists have a terrible track record when it comes to predicting interest rates, let alone their economic effects, we caution against having too much invested in just a few stocks. There are a lot of markets where stocks are “on sale,” and while it could still be a while until the discipline of buying low and selling high delivers rewards, history suggests the rewards will come.
Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.
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As Chief Operating, Investment, and Compliance Officer, Kristi is responsible for the firm’s investment offerings, client service, operations, and compliance. She and her team are focused on delivering ever greater value to our clients through outstanding service, diversified investment offerings, and easy-to-use technology.
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