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January 2024 Monthly Review

"Anticipation...Is Keeping Us Waiting"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back

The Carly Simon song, "Anticipation," was also her second album title and was released in 1971. It was famously used for several Heinz ketchup television commercials starting in 1973. It earned her a Grammy nomination for Best Pop Vocal Performance, and it climbed to #3 in the Adult Contemporary charts. I came across it recently while attempting to make a playlist for a special person. It seems to me to be a rather perfect summation of current markets. For the financial markets, the anticipation lies most with the FOMC and what they intend to do with short-term interest rates. The Fed Funds rate has gone from zero during the initial stages of Covid to 5.25% currently. The aggressive move higher was the Fed’s attempt at reigning in significantly higher inflation…and for the most part, it has worked. The latest CPI reading for December came in at .3% and 3.4% for the year. That is a far cry from the over 9% readings we saw in June of 2022. We came into 2024 with the anticipation, based on the forward futures markets, of the Fed lowering rates some six to seven times in .25% intervals…or 1.5-1.75%. That would take us back down to below 4% on the closely-watched rate. Well, maybe not-so-much. In its’ latest meeting at the end of January, the Fed left rates unchanged, and indicated that it was unlikely to lower them in March as most economists had predicted would be the latest point they would start their accommodative move. The quick reaction was a significant 1.5-2% selloff in most stock indexes on the last day of January, which was followed by a bounce back to new highs in the first two trading days of February. The S&P 500 and International Developed stocks eked out positive returns of 1.68% and .58%, respectively. Small-cap U.S. and Emerging Market stocks were significantly lower, while Commodities had a strong start to 2024. Cash-like securities remain a real alternative to the traditional asset classes, as the 3-month Treasury Index delivered a .46% gain. Given the Fed’s recent comments, we believe you can anticipate Cash continuing to be okay for now.

A Look Ahead

We say this often, but 2024 should/could be a really interesting year in the financial markets. So much going on. We’ve talked about the Fed and short-term rates, along with inflation. Given the surprisingly good news on most of the economic front, the buzz about the possibility of creating a “soft landing” has found some firm footing…Cooling down inflation, but not cooling down the rest of the economy so much that it sends us into more severe recession. That, in a sentence, is the soft-landing, or Goldilocks scenario. And, as we sit here today, so far-so good. Consumers are still consuming. The Jobs situation is still strong. In January, we added over 350,000 jobs here in the states, and the actual unemployment rate remained historically low at 3.7%. It was not so long ago that any reading under 5% was considered more than acceptable. In addition, we have some major conflicts lingering on around the globe that potentially threaten to drag the U.S. into places we would rather not be. And, oh by the way, it is an election year. We’ve shared some extensive work in the past that shows that markets tend to perform pretty well, regardless of elections results. While we know this to be true, this impending election does have a different feel. We remain neutral in our main asset classes. Given the tepid start to the year, that served us just fine, but we will certainly look to take advantage of significant moves…either way, as we anticipate the Fed…and the market reaction. Carly also said later in the song, “stay right here, ‘cause these are the good old days.” Not a bad place to end!