Market Insights

Stocks rallied to start the New Year as investors looked for inflation to ease and the Federal Reserve to stop raising interest rates.

The S&P 500 rose 6.2 percent in January, its best monthly performance since October. Some of the gain resulted from bounces in companies that fell sharply in late 2022. That was especially true for consumer discretionaries like Tesla (TSLA), Amazon.com (AMZN) and Carnival (CCL). Traditional media companies including Warner Bros. Discovery (WBD) also led a rebound in the communications sector.

The move began on January 6 after a government report showed unemployment falling more than estimated while pay increased less than expected. That argued against a wage-price spiral driving up inflation. Instead of a dreaded 1970s scenario, investors could now be anticipating something more like 1994 and 1995. That’s when the Federal Reserve defeated inflation without a recession, ushering in the bull market of the late 1990s.

Further readings seemed to confirm the trend. The consumer price index (CPI) unexpectedly fell on January 12. Price and wage indexes in the fourth quarter gross domestic product also showed lower inflationary pressures.

These lay the groundwork for today’s Fed meeting and policy announcement at 2 p.m. ET. The market widely expects a 25 basis point increase, so attention will likely focus on comments about future policy. Those could appear in either the official statement or Chairman Jerome Powell’s press conference at 2:30 p.m.

Big Movers in January

Sector Watch

The table below shows sector performance last month.

Key Economic Events in January

Below are some key economic events from last month.

• Labor report shows potential for a soft landing: Job growth was higher than expected in December and unemployment was lower than projected. Wages still rose less than feared, which suggests inflation may be cooling without a recession. (1/6)
• Inflation unexpectedly declines: December’s consumer price index (CPI) fell 0.1%, versus estimates for an unchanged reading. It was the third straight month below estimates and the biggest drop since August 2020. (1/12)
• Consumers feel better as prices ease: January’s consumer sentiment index rose more than expected to a nine-month high. Assessments of the labor market and inflation expectations improved. (1/13)
• GDP ends 2022 strong amid signs of weakening: Gross domestic product rose 2.9% in the fourth quarter, beating the 2.6% forecast. Some economists said higher inventories and lower consumer spending may indicate a slowdown. (1/26)

What Experts Are Saying

Below are some noteworthy commentaries.

• Apollo thinks a soft landing could be underway: Apollo Global Management Chief Economist Torsten Slok thinks a soft landing is underway. He cited declining inflation and continued strength in the labor market. The result could be profits declining less than feared, potentially lifting stocks. (1/6)
• Strategists getting more optimistic? A Bloomberg article cited David Kelly of JPMorgan Asset Management and Ed Yardeni of Yardeni Research, who see rate hikes ending as inflation slows. They also cited extreme levels of pessimism as a potential reason for stocks to move higher. (1/7)
• Yield curve questioned: Professor Campbell Harvey, who discovered the link between the yield curve and recessions, said the indicator could be wrong now. “All models are simplifications of reality,” he said on CNBC, noting other indicators don’t confirm a hard landing. He added the Fed could trigger a recession by continuing to “overshoot” with rate hikes. (1/9)
• PC market expected to improve: A Reuters article said IDC and Canalys see a potential recovery in the computer-hardware market late this year. The researchers cited businesses upgrades and the looming end of Windows 10 support. PC makers and semiconductor companies may benefit, they said. (1/11)
• Can stocks defy lower earnings? LPL Chief Equity Strategy Jeffrey Buchbinder noted that indexes typically drop before profits decline because the market is forward looking. The same can be true as prices bottom, Buchbinder said, forecasting a “solidly positive year.” (1/19)

Popular Futures Contracts in January

Newsworthy Events This Month

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