January Market Commentary

Market Commentary

US stocks declined slightly to start the new year as optimism at the beginning of the month gave way to concerns about the continued spread of the coronavirus.  The new administration announced plans for a $1.9 trillion stimulus relief bill which would include additional stimulus checks for individuals, buoying markets over the first half of the month, but the spread of a new, more contagious, strain of the virus and concerns over the vaccine effort weighed on the outlook to end the month.  Corporate earnings have also impressed to date with the majority of companies topping expectations.  Economic news over the month showed a mixed picture.  On the positive side, manufacturing activity hit its highest level in two years, household income rose for the first time in three months, business activity picked up pace and consumer confidence rose.  However, the December jobs reports showed a loss of 140,000 jobs while the unemployment rate remained at 6.7%.  New unemployment claims remain elevated and retail sales fell 0.7% in December.  Fourth quarter GDP grew at a 4% rate, but fell short of expectations.

Foreign stocks edged up in January led by emerging markets.  European markets ticked down over the month as a new, more contagious strain of the coronavirus spread across the continent and drove additional business restrictions.  Factories in Asia and Europe increased their output in December pointing to a strong manufacturing sector. Saudi Arabia announced it would cut oil production by 1 million barrels a month starting in February as it’s grown concerned over a resurgent coronavirus.  Oil prices climbed 7.6% over the month.  China posted GDP growth of 6.5% in the fourth quarter, and 2.3% for the year despite the pandemic.  It was the only major world economy to see growth in 2020.  Emerging markets outpaced developed markets over January and the trailing twelve months.

Bonds fell to start the new year as interest rates rose on the expectation of increased stimulus measures from the new administration.  The Fed concluded its January meeting keeping all its supportive policies in place.  They stated the economy has cooled off more recently as a result of the upswing in COVID-19 cases and supportive measures will be needed for some time. The 10-year Treasury yield ended the month at 1.11%, its highest level since March, up from 0.93% to start the year.  Over the month muni and credit bonds were the top performing sectors, while over the trailing year, credit bonds led the way.  Longer term bonds trailed shorter term bonds in January, but outpaced shorter term bonds over the last twelve months.