From Maple Capital
Monthly Commentary as of 1.31.2024
Click here to read the full Commentary
- “Bond yields on the short end of the yield curve fell slightly in January while those on the long end rose a bit. These changes were very minor and led to a rather dull total return of 0.0% for the Bloomberg U.S. Intermediate Aggregate Index.
- Following up from the “Powell Pivot” in December, every piece of incoming economic data was carefully scrutinized as investors are trying to predict the timing of the Fed’s first rate cut. Much of the data remained on the firm side but ultimately it will be inflation that determines when the Fed will act.
- Retail flows into fixed income funds and ETFs have been robust, which has been helpful in allowing record-high supply of corporate bonds to be readily absorbed by the market. Spreads were flat in the intermediate segment of the corporate market for the month, which left excess returns over Treasuries at just 8 basis points for the month.
- The Mortgage-Backed Securities sector lagged Treasuries in January, giving up some of their gains from late last year. Excess returns compared to Treasuries were -18 basis points.
- Equity market performance was mixed: domestic and Developed international indexes posted positive results, while Developing international was down nearly 5% on China-related weakness.
- The initial read on fourth quarter GDP surprised to the upside at 3.3% annualized. Growth was broad-based, with every major component posting gains. This was the 6th consecutive quarter of growth at 2% or better and it leaves the full year growth figure at 3.1%.
- Some of the notable aspects of GDP growth include: 1) a 14.8% surge in non-residential structures for the full year, primarily EV and microchip plants owing to the Inflation Reduction Act and CHIPS & Science Act, 2) durable goods outlays rose at a 4.6% annual rate in the 4th quarter, while non-durables posted a 3.4% annualized gain, 3) exports rose at a 6.3% annualized rate in the quarter.
- Progress on inflation also continues to mount. Core PCE, the Fed’s favorite inflation barometer, is now at or below 2% on a 3-month and 6-month annualized basis and is under 3% on a year-over-year basis.
- These growth and inflation metrics continue to surprise and confound most economists. Our favorite characterization came from BMO Capital Markets: they called it “Goldilocks on steroids.” Still, the cumulative effect of 525 basis points of Fed rate hikes since March of 2022 is having an impact and some degree of slowing is expected in 2024. Many are predicting a soft landing, but an outright recession remains a distinct possibility.
Within the S&P 500 Index, Nvidia, Microsoft, and Meta Platforms were the top three contributors to return for the month. Tesla, Apple, and Intel Corporation were the biggest detractors in January.”
Click Here to Read the Full Maple Capital Commentary
TC139722(0224)1