"The disinflationary process has started." #jeromepowell #fed #stockmarket Bob's Market Update
Channel: Payne Capital
Date: 2023-02-04

This is Bob Payne, Chief Investment Strategist here at Payne Capital Management with this week's Market Update. This week on the Street of Dreams, the Dow fell 2/10 of 1% while the S&P 500 rose 1.6%. And the tech-heavy NASDAQ led the way with another big week, up 3.3%.

Now, the market rallied hard earlier in the week when the Federal Reserve announced that it had raised its key federal funds rate by only 25 basis points. And right after Federal Reserve Chairman Jerome Powell said, and I quote, "The disinflationary process has started." unquote. Investors immediately priced in a lower peak for the federal funds rate and greater odds of rate cuts in the second half of this year.

Then on Friday, the market gave back some of its gains after a red-hot jobs report that showed the U.S. economy added 517,000 jobs in the month of January, much higher than expected. And the unemployment rate dipping to 3.4%, the lowest rate since 1969. Average hourly wages increased by 4.4% year over year, slower than the 4.8% increase through December. Good news for the economy, but bad news for investors, hoping that inflation can decline quickly enough for the Federal Reserve to take a step back from raising interest rates. But please don't tell the market that because so far this year it's not listening. Right now, all it sees are easing financial conditions, an economy in good shape, moderating inflation, and now a more dovish Federal Reserve. Not too hot, not too cold, just like Goldilocks likes it.

Now we also turned the page on the calendar this week and the month of January finished with a gain of 6.18%. January is a reasonably good predictor of the year based on S&P 500 data. Since World War II, if the market is up in January and has continued to rise in the remaining 11 months of the year, more than 85% of the time an average gain is about 11.5%. It's called a January barometer by the Stock Traders Almanac. And the saying is "as goes January, so goes the year." The average annual S&P 500 gain for any year, about 9%. But when the prior year is negative, there's historically a higher bounce, and the rally averages about 14%. Need I remind anyone, last year was a very negative year. But better yet, this year has even more reasons to be higher since the other market performance indicators were also positive.

For instance, stocks were higher in the Santa Claus rally period in the final five trading days of December and the first two days of January, they were also higher in the first five trading days of the month. Historically, if you have a down prior year, a positive Santa Claus rally, a positive first five trading days, and an up January, the market has finished the year up 100% of the time. The last occurrence was 2019 and the return for that year was 29.9%.

Now, as Mark Twain so famously said, history never repeats itself, but it does often rhyme. Hey, let's hope this market is singing his tune.

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