Following the super end to 2023, in January came the hangover. Equity and bond markets started on the wrong foot before recovering towards the month's end. Sentiment wasn't helped by slight upticks in inflation on both sides of the Atlantic.
After the progress in 2023, markets took the news badly. Before rallying towards the end of the month, bonds sold off. At its worst, the US 10-year Treasury yield rose from 3.8 per cent at year-end to 4.2 per cent. It was a similar story in the UK, with the 10-year gilt yield rising from 3.4 to 4.1 per cent. Central bank governors dampened expectations on the timing of interest rate cuts. The Federal Reserve especially sees little need to cut rates while the robust economy and the labour market remain hot. US unemployment has been below 4.0 per cent for 24 months – the longest run in over 50 years. This month’s news that US inflation fell less than expected in January did not help, although in the UK there was a pleasant surprise – the latest inflation numbers were below expectations.
Equities got off to a poor start in 2024. Delayed interest rate cuts, higher bond yields and disappointing growth in China weighed on sentiment. US markets rallied in the last week, led by 2023's winners. Except for Apple (US:AAPL), down 4.2 per cent, and Tesla (US:TSLA), down 24.6 per cent, the Magnificent Seven powered on. Nvidia (US:NVDA) gained 24.3 per cent (and that was before its bullish results drove the shares even higher this month) and Meta (US:META) gained 10.2 per cent. The net result was that the S&P 500 was up 1.6 per cent and Nasdaq up 1.0 per cent. Continental European markets managed to creep into positive territory, with the Dax up 0.9 per cent and the CAC 40 up 1.6 per cent.