Dear Clients & Friends,
Stocks are off to a fast start in 2024. January stock market gains are particularly gratifying 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 Index has risen in January, the average gain for the remainder of the year has been about 12%. This January, the S&P 500 Index was up 1.6%— that's a great sign.
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 reaching a new high has been nearly 12%, with gains 13 out of 14 times—this is a very positive statistic for solid returns in 2024.
Those new highs have prompted some to wonder if stock valuations are getting too rich. It appears they are definitely 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 impressive 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.
According to our friends at LPL Research, they see a lot of merit in the bull case for stocks, but the bears have plenty of ammunition to support their case too. Stocks continue their attempt to climb the proverbial “wall of worry” and build on year-to-date gains. Presidential elections bring uncertainty, which may add some volatility even though stocks usually rise during election years. And commercial real estate continues to plague some regional banks.
A treacherous geopolitical climate cannot be dismissed, particularly a potentially wider conflict in the Middle East. Shipping goods around the world is taking longer and costing more. Military aggression by China toward Taiwan cannot be ruled out, nor can some spillover from China’s soft economy.
In reviewing the full picture of what to expect from markets this year, a resilient U.S. economy, easing inflation pressure, and growing earnings create a favorable backdrop for both stocks and bonds. But with high valuations and mounting geopolitical risks, modest positive returns appear to be possible.
Please don’t confuse these comments with a “market prediction” because predictions are more likely wrong than right, but rather an assessment of what may lie ahead for the capital markets. At Mercer Partners, we continue to counsel the importance of sound financial planning and sticking to your core investment principles.
As always, thank you for your continued trust and confidence. Please reach out to your advisor directly with any questions— that’s exactly what we’re her for.
Nick Enzweiler, CFP® is a registered representative with, and securities offered through LPLFinancial. Member FINRA/SIPC. Investment advice offered through Mariner Independent Advisor Network, a registered investment advisor. Mercer Partners Wealth Management and Mariner Independent Advisor Network are separate entities from LPL Financial.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP® in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of February 6, 2024.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance does not guarantee future results.
Asset allocation does not ensure a profit or protect against a loss.