Global Equities Witness a Bumpy Ride in January
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Market Moves, Market Watch
In the first month of 2024, markets have exhibited a rather muted and somewhat volatile performance, despite experiencing an uptick. This trend isn't entirely unexpected, given the robust rally seen in the final weeks of 2023, during which the S&P 500 surged more than 15 per cent from late October to December.
During the shortened trading week due to the holiday for Martin Luther King, Jr. Day, in the U.S., the stocks mostly closed on a higher note in the past fortnight. However, gains were limited and primarily concentrated in growth stocks, with the equally weighted S&P 500 Index experiencing a slight decline. Information technology shares, particularly in the semiconductor sector, performed well. NVIDIA and Advanced Micro Devices (AMD), two prominent AI chip manufacturers, saw significant strength.
The season for fourth-quarter earnings reports was still in its initial phase, with just 23 companies from the S&P 500 slated to release their earnings during the week. Boeing, a Dow Jones Industrial Average member, saw its shares drop notably after a downgrade from analysts who warned of potential delivery delays for its 737 MAX airliners due to regulatory safety concerns. However, Boeing's stock largely rebounded later in the week.
The chart shows returns for January and the subsequent full year. Since 1990 there have been 15 years when the S&P 500 returns were negative in January and six of these years went on to have negative full-year returns.
At present, market expectations suggest approximately six interest rate reductions in 2024, with the initial cut anticipated at the March 21 meeting. However, the likelihood of a rate cut in March has recently diminished, following comments from some Federal Reserve officials expressing reservations about an early cut. A rate cut in March seems improbable, particularly considering that both core CPI and PCE inflation are significantly higher than the Fed's 2 per cent target. Nonetheless, we foresee the possibility of three to four rate cuts later in the year, potentially beginning around mid-2024. This projection is based on the anticipation of a continued easing in inflation, which could lead the Fed to adjust rates towards a more neutral stance gradually.
In Europe, the STOXX Europe 600 Index closed down in the past fortnight by 1.58 per cent, influenced by central bank statements that led to reduced expectations for an early interest rate cut. Several major European stock indexes also fell, with France’s CAC 40 Index down 1.25 per cent, Germany’s DAX decreasing 0.89 per cent, Italy’s FTSE MIB dropping 0.61 per cent, and the UK’s FTSE 100 Index losing 2.14 per cent.
In Japan, stock markets performed well, buoyed by a weaker yen that benefited exporters. The Nikkei 225 Index reached a 34-year high with a 1.1 per cent gain, and the broader TOPIX Index increased by 0.6 per cent. December saw Japan’s core consumer price index rise by 2.3 per cent, a slight decrease from November's 2.5 per cent and the lowest since June 2022, aligning with the Bank of Japan's expectations of a consumer inflation slowdown.
Chinese stocks, however, faced a decline as recent economic indicators highlighted a bleak economic outlook. The Shanghai Composite Index fell 1.72 per cent, marking its eighth weekly decline in the past nine weeks, while the blue-chip CSI 300 Index dropped 0.44 per cent, its ninth weekly fall in the past ten weeks. Hong Kong's Hang Seng Index plummeted by 5.76 per cent.