What has January shown us so far?  

The market had reached a peak on December 28th, and then began a decline that continued through the end of 2023 and into January, finally bottoming out on the 5th.  On Monday the 8th, the market rebounded a bit, rising again through Thursday the 11th, before falling back through Monday the 17th.

In other words, the market lacked direction and momentum for the first half of January.  In all that period of time, stocks never rose to be as high as on December 28th, but did not fall, either.  

The market had been experiencing a period of generally growing value since late October.  Had it reached its peak?

Stock prices reflect the status of the economy.  On an absolute scale, the market, after all, was generally at or near an all-time high.  Was the economy leveling off, or was its growth going to continue?  Or decline?

What does it mean to reach a peak?  

Stocks can be “over-bought” or “over-sold”.  “Over-bought” means that the prices of stocks are generally above their expected value, given the financial status – sales levels, cost levels, etc., of the individual companies and the general state of the economy.  “Over-sold” means that stock prices are too low, given those same criteria.

A peak generally occurs when investors perceive stock prices as reflecting an over-bought situation.  Increases in stock prices seem stalled.  Investors increase the selling of their stocks, taking profits, which reinforces and maintains that particular price-range.

The first half of January, in other words, showed a market searching for direction.  Investors were cautious, awaiting news, trying to see into the future, and awaiting indications of where the new year would go.  

Economic conditions seemed to be generally positive.  Politically, with neither the Democrats nor the Republicans in control of Congress, any radical, economy-damaging legislation faced a roadblock.  

With an eye on the all-to-quickly-approaching 2024 elections, the President likewise was tending to keep his publicly-visible actions supportive of voters’ economic well-being.

That left the Fed:  what would it do about inflation?  Would it raise interest rates, leave them untouched, or lower them?

The Fed gave its answer:  December statistics indicated that inflation was almost back down to the 2% “ideal”.  There would be no change to the interest rates.  Investors interpreted the Fed’s response to the news as indicating that no further increases are likely.  Members of the Fed for the first time talked openly about the possibility – later this year, to be sure – of reducing interest rates.  

That was enough.  Since the 17th, stock prices have been climbing fairly steadily, as they are prone to doing – two or three steps forward, one step back – but growing nonetheless.  

January’s finish is best described as “cautious optimism” – more sensible than “irrational exuberance”, but certainly better than “muddling along”.

If January is a harbinger of a trend for 2024, look for 2024 to be a year in which your investments grow nicely.

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