The year started on a generally positive note for investors (MSCI World +1.2% MoM), albeit with a fairly rocky path to that outcome. The first couple of weeks of January saw investors start to question their level of optimism around US Federal Reserve (Fed) rate cuts expected in 2024 after the release of a slew of stronger-than-anticipated economic data. US payroll data recorded a rise in the number of jobs added MoM and an increase in the pace of wage growth, while US retail sales growth unexpectedly accelerated. On the inflation front, US headline inflation for December accelerated more than anticipated (to 3.4% YoY), while core inflation slowed less than expected (to 3.9% YoY). US 10-year government bond yields pushed higher during the early stages of January as Fed rate cut optimism waned, producing a headwind for equity markets, which were generally in negative territory MTD by mid-January. Ultimately, positive sentiment prevailed, and US rates faded into month end, ending January largely unchanged (3.9% p.a.).
Around a third of S&P 500 companies reported 4Q23 earnings during January, with earnings essentially flat in aggregate relative to 4Q22 for those companies reporting. This was about 6% ahead of expectations for a soft final quarter of 2023 for corporate earnings. Tesla was amongst the biggest losers in January (-25% MoM), as CEO Elon Musk warned of muted sales growth in 2024, while the darling of 2023, chip maker Nvidia, went from strength-to-strength (+24% MoM), maintaining its strong momentum from 2023 (+240% YoY) with no discernible catalyst – earnings are only due to be released in late February.
Emerging market (EM) equities continued their disappointing run of form into 2024 (MSCI EM -4.6% MoM). Chinese equities were once again the biggest detractor from performance (Shangia Composite Index -6.3% MoM and Nasdaq Golden Dragons -14.1% MoM), as a drip-feed of Chinese stimulus measures failed to ignite investor confidence with economic data suggesting the Chinese housing market has yet to find a bottom.
The European Central Bank (ECB) and the Fed both voted unanimously to keep rates on hold at their respective January meetings (as expected), and the US dollar started the year on a positive note, strengthening against all major currency pairs with the exception of the Indian rupee (+0.2% MoM). Brent crude oil (+6.1% MoM) bounced back above US$80/bbl into month end amid acute tensions in the Middle East and disruptions to the key Red Sea shipping route.
