While 2024 is only one month old, many investors may feel fatigued from what has been a very busy handful of weeks. With geopolitical tensions on the boil, major moves and milestones in markets and a slew of upbeat economic data, January has been a wild ride. As a result, it is worth unpacking some of the things that have helped to define the first month of the new year.

• Economic indicators remained robust: December employment numbers handily beat expectations, showing job gains of 216,000 and an unemployment rate steady at 3.7%. Meanwhile, December inflation modestly reaccelerated, thanks to gains in energy prices, to 3.4% year-over-year; shelter inflation stayed quite sticky. 4Q 2023 GDP was also of note, considerably stronger than consensus and showing full year growth of 3.1%, significantly above the Federal Reserve’s forecast.
• Rates nudged higher as the outlook for Fed policy changed: Treasury yields moved slightly higher, with both 10-year and 30-year rates up around 20 bps. This move higher can likely be attributed to stronger than expected economic data, which suggests that the futures market may have been overzealous in expectations for interest rate cuts. The Fed is still set to cut rates this year, but economic resilience may delay and diminish those cuts.
• Markets moved, but not together: Depending on size, style, geography and asset class, investors had a range of different experiences across markets. The S&P 500 reached all-time highs in January, up north of 3% for the month; growthy names generally outperformed value. Meanwhile, small cap stocks fell modestly. Overseas, emerging markets fared poorly, down considerably in U.S. dollar terms, while Europe was close to flat and Japan somewhat positive. Bond market performance was generally muted, with cash up modestly and the Bloomberg U.S. aggregate down slightly.

All told, January has proven to be a dramatic start to what is sure to be an eventful year for both macro and markets. Geopolitical uncertainty and an impending U.S. presidential election, coupled with the divergence in performance across assets in January, help to underline the importance of diversification in a fundamentally uncertain world.

Moreover, as highlighted in our 2024 outlook, the opportunities that exist in U.S. equities (like the broadening out of the recovery), international equities (like the convergence of global growth) and fixed income (like the upcoming Fed cutting cycle) all reinforce the importance of stepping out of cash and into risk with active management. 

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