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The month that was:
2024 started off with small gains. In January, the S&P 500 went up by about 1.6%, the Dow went up by about 1.3%, and the Nasdaq went up by about 1%. Smaller companies did not do as well, as the Russell 2000 went down by almost 4%. Communication services was the best sector, while real estate was the worst. Tesla was one of the biggest losers, falling about 25% in one month.
On January 31st, the Fed kept interest rates the same, between 5.25% and 5.5%, for the fourth meeting in a row. Fed Chair Jerome Powell also said that a rate cut in March was not likely, and the market went down that day. The economy also stayed strong, as companies added 353,000 jobs in January, almost twice what experts expected.
In my December newsletter, I explained that the Fed predicted it would cut interest rates three times in 2024. Since then, investors have been trying to guess exactly when the first cut will happen. Why does it matter so much?
When the Fed cuts interest rates, borrowing money becomes cheaper for companies and families. Safe investments like Treasury notes also pay less interest, so stocks look more attractive. Investors try to buy before the cut happens, so the stock market moves as soon as people change their guess about the timing, even if the actual cut is months away. In December, many investors were expecting the first cut in March. When Powell said March was unlikely, investors had to push their guess back, and the market went down.
It is a little like waiting for a snow day. If everyone thinks school will be canceled tomorrow, they are excited tonight. If the forecast changes, everyone is disappointed right away, even though nothing has actually happened yet. As a long-term investor, I don't worry too much about the exact month of the first cut. What matters more is that inflation keeps coming down and that the companies I own keep growing their profits.
Buys -
None.
Sells -
None.
I did not make any trades this month. I am happy with the companies I own, and sometimes the best thing to do is nothing at all.
Thanks for reading my newsletter!