January 2024 Market Recap

Highlights

    • The labor market remains strong, adding more jobs in January than expected.
    • Stocks were mixed to start the year.
    • Leadership in the market remains centered around larger companies.
    • Interest rates remained mostly steady in the month of January.

 

Economic Update

Employment

January’s unemployment rate remained unchanged at 3.7%, as did the labor force participation rate at 62.5%. The headline unemployment rate has now been at or below 4% for 27 consecutive months. Employers added 353,000 new jobs in January according to nonfarm payroll data, far surpassing the expected increase of 185,000.

 

Stocks and Bonds

US stocks posted modest gains to start the year. The Dow Jones Industrial Average rose 1.3%, the S&P 500 advanced 1.7%, and the NASDAQ added 1.0%. Mid- and Small-cap stocks did not fare as well in January–the S&P 400 (Mid-cap) gave back -1.7% and the Russell 2000 declined 3.9%. Foreign stocks were mixed with the MSCI EAFE rising slightly (+0.6%) while Emerging Markets were the worst performing with a loss of -4.6% to start 2024.

 

Five of the eleven sectors had a positive start to 2024. Communication Services was January’s sector leader with a 4.4% gain, followed by Financials at 3.1%. The laggards this month were Materials, Consumer Discretionary, and Real Estate, the last of which posted a 4.8% decline.

Treasury yields had an uneventful start to the year as longer-term treasuries posted slight increases. The 30-year rose 19 basis points to 4.22%, the most of any duration. The 1-month, 6-month, and 1-year T-Bills all fell by single-digit basis points. The benign interest rate environment translated into mixed returns for the bond market.

 

Reversion to the Mean

    John Bogle, the founder of The Vanguard Group, is credited with saying reversion to the mean is the “iron rule of financial markets.” In other words, Bogle believed that investment performance tends to revert to its long-term average over time, and that chasing past winners without regard for fundamentals or valuations is a flawed strategy.

    For example, at the beginning of 2021, the Ark Innovation Fund, which is an ETF managed by Cathie Wood, was one of the strongest performing investments. Concentrated in many of the stocks that benefitted from the accelerating trends in technological innovation and disruption brought on during the pandemic, the fund’s holdings included companies at the forefront of sectors such as electric vehicles, cloud computing, genomic sequencing, and fintech. These companies were experiencing rapid growth and attracting significant investor interest due to their potential to reshape industries and generate outsized returns. As a result, the Ark Innovation Fund attracted substantial inflows from investors seeking exposure to high-growth, disruptive companies. This heightened demand, combined with the fund’s concentrated holdings and Cathie Wood’s reputation as a visionary investor, contributed to its status as one of the top-performing and most closely watched funds in the market.

    In contrast, Berkshire Hathaway, despite being managed by one of the best investment managers in history, had generated returns that were far less exciting. Some wondered if Buffett had lost his touch.

    Fast forward to today and the graph looks dramatically different. Over the entire timeframe from early-2018 through today, the Ark Innovation ETF has returned low-single digits, while Berkshire steadily compounded their investor’s capital.

    Sometimes the urge to buy something that has done very well over the near term can be tempting. While that isn’t always necessarily the wrong thing to do, it’s a good reminder that slow and steady can also be a good thing and often ends up winning in the long run.

     

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    Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.  Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security.  To learn more about our firm and investment approach, check out our Form ADV.

     

    To view this article and others like it online, visit the P&A blog at https://pittand.com/blog/.

    Click here to download the PDF version of this article.

     

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