January’s Market Review
The first month of 2024 is already complete. The S&P 500 finished the month up 1.6%, The Dow Jones Industrials were up 1.2%, and the Nasdaq was up 1.0%. (1) January was a great month until its last day when the S&P 500 fell 1.6% and the Nasdaq 2.2%. The last day was a drop of 48% of January’s return up to January 30th. The index chart visually shows the pain of January 31.
Interest rate expectations caused the last-day drop as the Federal Reserve Federal Open Market Committee (FOMC) January 31st meeting unfolded, and investors digested the lower probability of rate decreases starting in March. While the last day of the month was difficult, it was fully recovered in the first two days of February. I added the first two days of February in the chart below. It can easily be seen that the market recovered quickly from the FOMC meeting. More importantly, it shows that interest rate expectations provide a lot of market volatility.
I didn't expect an early 2024 interest rate decline. I do expect an interest rate reduction in the 3rd quarter. The markets will watch inflation and employment reports using the information to project when the first rate reduction may occur.
Considering all the above, including the first days of February, I consider January very positive for the markets and our clients.
If you remember, last month's review referenced that since World War II, if the market is up in January, it has continued to rise in the remaining 11 months of the year more than 85% of the time, and the average gain is about 11.5%. (3) Only time will tell if this holds up. I will come back to this during the end of 2024 market review.
January Portfolio Changes
At the end of December, we considered adding EWW - iShares MSCI Mexico Exchange Traded Fund (ETF), which we did not execute. We did reduce our energy holding, IXC – iShares Global Energy ETF, by 2.5% and added 1.5% to SMH – VanEck Semiconductor ETF and 1% to XLK – Technology Sector SPDR Fund. This was a good move for January as IXC reduced 2.0% for the month while SMH was up 12.3% and XLK was up 7.5%. (4)
February Market Forward Look
I am concerned with a very narrow market leadership as the average stock in the S&P 500 was down 0.84% in January, even with the index itself up 1.6%. (2) This is reminiscent of much of 2023. We will watch this closely in the first weeks of February to determine if any changes are necessary.
However, with mega-cap stocks continuing their higher returns, I wanted you to see our top ten holdings. On January 21, amazingly, ten companies made up 19.2% of the 100% stock / 0% bond portfolio. We have a high percentage of the mega-cap stocks. These percentages will drop for a more conservative portfolio as bonds replace stock.
Microsoft | 4.41% |
Apple | 3.36% |
Nvidia | 2.34% |
Broadcom | 1.89% |
J&J | 1.42% |
AbbVie | 1.42% |
Home Depot | 1.20% |
Proctor & Gamble | 1.10% |
Texas Instruments | 1.02% |
Cisco Systems | 1.02% |
Total | 19.18% |
February Portfolio Possibilities
We are currently investing in the S&P 500 using three ETFs. Considering the narrow market leadership mentioned above, we have considered reducing our holding in EQWL – Invesco S&P 100 Equal Weight ETF. We have started this consideration in January with no change. However, it remains on our watch list.
(1) Nasdaq.com
(2) Bespoke.com
(4) Morningstar.com
Schorn Wealth and Fiduciary Planning, LLC, believes all information in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This report is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, the past performance of any investment is not a guarantee of future results. Schorn Wealth's and Fiduciary Planning, LLC's representatives or clients may have positions in securities discussed or mentioned in its published content.