Market Recovers from December Pull-back
The good news in January is the market rebounded in the last half of the month to recover its losses from the December pull-back. Inflation rose by 0.2% in December and this was below expectations, so it was interpreted by investors as good news. When this number was released on January 15th, the market took off with hope that inflation is moderating and more rate cuts may come this year. The S&P 500 Index reached a new all-time high on January 23rd. The Dow and the Nasdaq both regained most of their losses off the early December high but failed to reach new highs in January.
The December jobs report far exceeded expectations with 256,000 new jobs. In addition, unemployment declined. These reports indicate a robust economy and a positive outlook from employers going into the new year.
Investors waited all month to hear from the Federal Reserve about its next interest rate move. In the January 29th meeting the committee voted to hold interest rates steady this month. The message coming from the Federal Reserve is more subdued than it was a few months ago regarding rate cuts this year. It seems likely that there will be only one or two cuts in 2025.
The saying is “as January goes, so goes the year”. It is called the January Barometer. With the strong rebound in the last half of the month, January posted a gain of 2.93% on the S&P 500 Index. This bodes well for the market in 2025. Statistics compiled by “The Stock Traders Almanac” show that a positive January leads to a positive year 83% of the time since 1969.
In spite of widespread negative sentiment, the market shows remarkable resilience. It recovered quickly from the December decline. There is broad participation across industry sectors and market cap sizes. For contrarians, negative sentiment can actually be a positive indicator.
In the near term, we anticipate more volatility as investors closely gauge the future of inflation and interest rates. From a seasonal perspective, in February and March the market typically trades sideways digesting gains from the previous three months. Overall, we see a strong economy and the stock market in a positive trend.
In addition to persistent inflation, the market is facing headwinds from tariffs and possible trade wars and geopolitical unrest. It is best not to focus on the noise. The market is known to climb a “wall of worry”.
Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.