January, 2024 - Investment Market Recap

January, 2024 - Investment Market Recap

About half of the S&P 500 companies have now reported their quarterly earnings and those earnings reports have been fairly impressive, with a little more than 40% of those companies reporting earnings growth of 10% or more.  This is the highest this percentage has been since 2022, and it suggests that the earnings recession may be over. 

The International Monetary Fund (IMF) revised its 2024 global economic forecast upwards, including its expectations for both the U.S. and Chinese economies.  The IMF saw more of a chance of a soft landing, citing consumer resilience and faster-than-expected inflation easing. 

Further, on January 31st, following the Federal Reserve's Open Market Committee meeting, Federal Reserve Chair Jerome Powell stated, "We feel like inflation is coming down...what we are trying to do is identify a place where we are really confident about inflation getting back to 2% so that we can then begin the process of dialing back the restrictive level."  In other words, the Federal Reserve is looking for the point where they will begin to cut interest rates.  As we have noted before, with the Presidential election ahead of us, the schedule for the Federal Reserve to cut rates may be compressed.  They have signaled rate cuts for 2024 totaling 0.75%, which would move the Federal Funds rate down to a range of 4.75% to 4.50%. 

When the Fed cuts rates, stock markets typically spike higher since the borrowing costs for public companies should fall, making it cheaper to expand their businesses and boost earnings. It reduces short-term interest rates throughout the economy, increasing the supply of money and making it cheaper to get credit.  Loan rates will come down, and consumers will have a bit more ease in financing everything from houses to cars.  In sum, when the Federal Reserve cuts rates this year, it should serve as a shot of energy to the U.S. economy and the investment markets.

We believe the year ahead will be positive. The election cycle is likely to create some uncertainty as we move further into the year so the year will have some ups and downs.  But the U.S. economy is showing strong growth , and we believe that will carry the day and the markets will have a positive year.