NEI Monthly Market Insights: January 2024

Feb 20, 2024

Markets staged a remarkable November rally

Following the “almost everything rally” that characterised the final few months of 2023, performance across asset classes was mixed in January. In the U.S., the S&P 500 Index was propelled to record highs as optimism around a potential soft-landing scenario continued the rally in the mega cap stocks. Meanwhile, good news was bad news on the fixed income side with strong economic data pushing yields higher, proving a less positive environment for fixed income. Global bonds returned -0.2%, while Canadian bonds returned -1.5% for the month. While the S&P 500 returned 2.9% in January, Japan’s TOPIX Index was the best performing equity market, up 6.0% for the month, continuing the strong performance seen last year. The S&P/TSX Composite Index posted a small gain of 0.5% while emerging market equities were down -3.3%, driven by continuing concerns about China.

The NEI perspective

Conflict and political uncertainty haven’t had much of an impact on markets yet, but as conflicts in the Middle East rage on with the increasing probability that other countries may be involved. Concerns around the outcome of major elections including the presidential election in the U.S. will likely increase volatility in 2024.

Interest expectations remain key driver of markets as continued uncertainty around the path of inflation and economic growth have contributed to volatility in yields. Over the past few months, the yield on 10-year U.S. treasuries have bounced between 5% and 3.8%, while climbing back to 4% by the end of January.

Asian markets are diverging as China’s stock market continues to struggle amid contracting pricing that could lead to a deflationary cycle, while Japan’s stock market continues to be a top performing market relative to other emerging and developed markets.

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