Market Update January

One week into the New Year and the market seems to be a little directionless. We have a lot to digest in the beginning days of 2024 – the market ran rampant at the end of 2023 and we are entering a political year. It could get exciting, to say the least!

Perhaps the market is taking a breather. In the last 42 days of 2024:

• 10-year treasuries went from 4.84% to 3.85% due to massive speculation of potentially 6 rate cuts in 2024.
• The S&P ran up over 16% on the same speculation. Santa was not just going to give us a Christmas Rally, he was going to give us New Years Nirvana!

No such luck. Reality is quickly setting in due to a couple of factors. One, December inflation numbers are up, not down. Two, the December Jobs Report – more jobs were added, higher than forecasted, and wages are up. Both of which should not allow for a rate cut in March.

Now we get to face reality – the economy is not slowing down and is still well ahead of the 2% inflation rate that Mr. Powell wants. Plus, there is no spark to reduce consumer prices from the 20% increase of the past two years, which is where we all really feel it. Our stance is that there has to be some sort of deflationary action in goods and services before the Fed is ready to surrender rates – and that may take a while. Supply chain problems need to continue to improve while demand drops, however, the world conflicts keep popping up, and the consumer wants to keep spending.

These are all short-term issues that could quickly be resolved with a change in policies coming out of Washington DC – and it looks like that change may be on its way.

At the same time, there is another huge catalyst for growth looming on the horizon – Artificial Intelligence. Transformational change in technologies have always had major impacts on the markets, and we have not seen anything like AI before. There was a largely unreported event late last fall when data from the Department of Labor showed that productivity of the US worker is rising for the first in years. What could that mean for the future of the S&P 500 and the NASD?

I met a man this week who is in an all too common situation for many Gen X & Millennial investors. He is married, with two children. He contributes to his employer sponsored 401k. But that’s it. The rest goes to all of the things that allow him to live the lifestyle he wants to live now. He wasn’t too concerned with saving much more for the future – until he started seeing difficulties arise for his parents. His father shared with him that he had wished he’d invested more, when the market was trading under 5,000 points. He looked at me and said “Isn’t it at 30,000 now? Do you think that will ever happen again?”

I asked “have you heard of AI?” The market really only needs innovation. And we may be on the cusp once again.

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