US stocks had their best January in over 30 years driven by renewed faith in the US economy, strong corporate earnings and by a dovish Fed. After investors feared a significant slowdown in earnings growth, companies in the S&P 500 have reported a 12% increase in 4th quarter profits compared to a year earlier, ahead of expectations. Fed Chairmen Powell stated in multiple speeches that the Fed would be patient with any changes in monetary policy. Economic news reassured investors over the month with the December jobs report showing 312,000 new hires, well outpacing expectations. Wage growth rose 3.2% from a year earlier and past jobs reports were revised higher by 58,000 new hires. Inflation rose by less than 2% in December, compared to a year earlier, providing consumers more real earnings growth. However, US manufacturing, auto sales and home sales all cooled in December. Oil rebounded with equities, gaining 18% over the month. In January, US stocks soared, gaining 8.58%. However, over the trailing twelve months stocks are down 2.26%.
Foreign stocks surged over the month, more than bouncing back from their December declines, aided by US economic news, stimulative measures in China and the European Central Bank (ECB) leaving open the possibility of additional stimulus measures. Chinese manufacturing contracted for the first time since May 2017 and China’s GDP growth in 2018 was 6.6%, its slowest pace of growth since 1990. As a result, China’s central bank added roughly $38 billion to the country’s large and mid-size banks to boost lending and help the economy. In Europe, manufacturing was its weakest in more than a year, Germany and France’s GDPs both grew 1.5% in 2018 down from 2.2% and 2.3%, respectively, from 2017 and Germany’s business sentiment fell sharply. The ECB acknowledged that Europe’s outlook had weakened since December and said it could consider additional stimulus measures if needed. UK’s Parliament overwhelming voted against the latest version of the Brexit deal brought by Prime Minister May, bringing into question what the country will do with an end of March deadline. Emerging markets topped developed markets over the month. International stocks jumped 7.46% in January, but are down 12.25% over the trailing year.
Bonds continued their recent climb driven by the Fed’s change in stance. After raising the Fed Funds rate a quarter percent at their December meeting and projecting two interest rate increases in 2019, they changed tack in their January meeting saying they would be flexible with policy moving forward. They also announced they would be keeping more bonds on their balance sheet than they had expected to when they started unwinding the portfolio – a stimulative move for the economy. The 10-year Treasury yield declined over the month to end at 2.63%. For the month, credit bonds were the top performing sector and longer-term bonds topped shorter-term bonds. The broad bond market gained 1.06% in January and is up 2.25% over the trailing twelve months.
|Index Performance||Jan.||Trl. 1 Yr.|
|US Stock (Russell 3000)||8.58%||-2.26%|
|Foreign Stock (FTSE AW ex US)||7.46%||-12.25%|
|Total US Bond Mkt. (BarCap Aggregate)||1.06%||2.25%|
|Short US Gov. Bonds (BarCap Gov 1-5 Yr)||0.32%||2.44%|
|Municipal Bonds (BarCap 1-10yr Muni)||0.86%||3.11%|
|Cash (ICE ML 3Month T-Bill)||0.20%||1.95%|