Stocks are off to a solid start in 2024. January gains are particularly enjoyable because of the old adage from the Stock Trader’s Almanac, “As goes January, so goes the year.” Nearly 75 years of historical data shows that when the S&P 500 has risen in January, the average gain for the remainder of the year has been about 12%. This January, the S&P 500 was up 1.6%.
Stocks have also historically fared well after the broad index has reached a new all-time high, as the S&P 500 did last month for the first time in over two years. The average 12-month gain after a new high, with more than a 12-month wait between those highs, has been nearly 12%, with gains 13 out of 14 times.
Those new highs have prompted some to wonder about stock valuations. They’re elevated, no doubt, but they still look reasonable considering today’s interest rates. Interest rates and price-to-earnings ratios tend to move in opposite directions when rates are elevated. Big tech companies, like Alphabet, Meta, and Microsoft, are another justification for high valuations. Their earnings power is the reason why earnings growth is poised to accelerate and should help prevent valuations from getting too stretched.
A soft landing for the U.S. economy, though not assured, may also help push stocks higher despite full valuations — assuming inflation continues to ease. The job market remained surprisingly strong in January, adding over 350,000 jobs as wages rose. Although that could possibly contribute to a delay in Federal Reserve (Fed) rate cuts until summertime, markets may have adjusted to fewer cuts already. Good news may be good news.
While the Presidential elections can bring uncertainty, it may add some volatility ahead. Though historically stocks usually rise during election years.
The geopolitical climate also cannot be ignored, particularly a potentially wider conflict in the Middle East. Shipping goods around the world is taking longer and costing more. In addition, military aggression by China toward Taiwan can spillover from China’s soft economy.
In reviewing the holistic picture of what to expect from markets this year, a resilient U.S. economy, easing inflation pressure, and growing earnings can potentially create a favorable backdrop for both stocks and bonds. While no one has a perfect crystal ball...we continue to monitor all environments.
As always, please let us know if you have any questions or would like to further talk about your financial future...
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