GSB Ireland

Market Review – January 2024

January marked the beginning of a new year, but this did not signal any change in the momentum of the equity markets, with 2023’s best performers in Japan and the US delivering strong returns to start the year. Japanese equities had an especially prolific January, with the Nikkei 225 reaching multi-decade highs and finally approaching its all-time high set way back in December 1989.

January has historically been viewed as a strong month for equities, leading to a behavioural finance hypothesis termed the ‘January effect’, which posits that equities are more likely to rise in January than any other month. Some investors also believe that January acts as a barometer for equity performance in the rest of the year, with a positive January viewed as a good omen for the remaining 11 months. Empirical evidence for both hypotheses is inconclusive, and it would never be advisable to deviate from an established investment plan based on poor results from a single month but hopefully this year, the January barometer will prove to be accurate, and equities will deliver another year of gains for investors.

As always, when reviewing the performance of the equity markets, it makes sense to begin with the US, given the significance of the performance of US equities on the portfolios of investors. As previously mentioned, January was a good month in the US with the S&P 500 up almost 4% and the tech-heavy NASDAQ index up just under 6% as of January 30th. The ‘magnificent seven’ again contributed significantly, with Nvidia surging over 29% and Meta gaining over 15% to begin the year. However, it has not been a completely positive beginning to the year for the magnificent seven, with Tesla struggling mightily after reporting lower-than-expected revenue and adjusted EPS while warning about slowing electric car sales and the increased threat from Chinese competitors; Tesla is down over 23% year-to-date.

Japanese equities surprised last year and delivered exceptionally strong returns to investors who had remained faithful during a difficult couple of years prior to 2023. As highlighted in our Q4 market update, we were intrigued to see if Japanese equities could continue their momentum into the new year, particularly as the Japanese government has signalled its intent to provide support where possible to fuel the economy and avoid a return to the trap of deflation. It is too early to say for sure whether 2024 will prove to be another great year for Japanese equities, but the evidence from January is compelling, with the Nikkei 225 index posting a monster 8.34% gain as of January 30th. Elsewhere, European equities were up marginally with a gain of just over 1%, and UK equities continued to struggle with a decline of just under 1% as of January 30th.

The subject of interest rate cuts and the timeline of their arrival will be a key topic of discussion, especially in the first half of the year. Major indicators suggest that even the most robust major economies are beginning to slow down, which, combined with inflation approaching normal levels, could spur central banks into action earlier than was expected a few months ago. The US economy has thus far managed to shake off the impacts of higher interest rates far better than Europe, but the Federal Reserve is currently forecast to cut rates by 0.25% three times this year, with many speculating the first cut will come as soon as March. Investors would expect to get additional clarity when the Federal Reserve meets on the 30th and 31st of January. However, Jerome Powell will want to keep all options on the table for maximum flexibility. Rate cuts in the UK are expected to arrive slightly later than in the US due in part to higher inflation, with May currently forecasted as the first cut. In the Eurozone, there is a similar picture, with rate cuts expected to arrive a few months after the US begins.

Bond yields, despite a pullback over the last couple of months, remain at strong levels, with US 10-year treasury yields still over 4%. UK 10-year Gilts offer a slightly lower yield at 3.87% as of January 30th but bonds still offer investors an appetising opportunity to lock in yields ahead of the imminent rate cuts forecasted to begin over the next few months. Fixed income has struggled to deliver investors acceptable performance over the last few years, but with yields at strong levels and rate cuts providing upward pressure on bond prices, there is reason for optimism.

Overall, January was an impressively positive month for investors given the strong performance in major equity markets. With rate cuts on the horizon promising to provide some relief to faltering economies there is a lot of reasons to believe that this year can be as fruitful as the previous.

Our January Blogs Focus

This month’s newsletter covers a couple of subjects: Financial Road Map For 20242023, A Year Of Surprises And Lessons In Numbers, and Pathway To Financial Wellbeing. You can find these blogs by clicking on the buttons below.

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