The pre-Christmas “everything rally” petered out in January, as the market became worried that expectations of rapid, imminent rate cuts were over-optimistic. There were still gains to be had, but these narrowed to specific regions and sectors; high-quality technology stocks outperformed, while bonds and emerging market equities dropped.


Flash preliminary GDP data showed UK economic activity ticked up in January, rising to its fastest pace since last summer. This was in spite of the crisis in the Red Sea adding to supply chain price pressures. If reflected in final GDP figures, this should help the UK steer clear of recession. However, it wasn’t enough to keep the London stock market in the green, as the FTSE-100 dropped.


US markets bucked the trend to post positive figures for the month. The broad rally in the final two months of 2023 narrowed and the market was propped up by the familiar “Magnificent Seven” mega-cap tech names that dominated in the first half of last year. The S&P 500 index broached new highs throughout January, and in early February touched the 5,000 mark for the first time.

The good performance also reflected the latest macro data; US GDP grew 3.3% for 2023 as a whole, a standout performance that few expected 12 months ago. The US market dropped at the end of the month, however, after Fed chair Jay Powell explicitly stated that a March rate cut is unlikely.


The economic malaise deepened in Europe, as Germany reported its economy had shrunk at the end of last year. There were bright spots, with the PMI business survey rising to its strongest level since last summer, with manufacturing looking especially strong.


Chinese stocks suffered another bad month, as the property crisis and persistent deflation weighed on sentiment. The losses fed a vicious cycle driven by “snowball” derivatives. Snowballs are derivatives in which investors receive a bond-like coupon as long as an agreed index (in this case, Chinese stocks) remains above a determined level. Snowballs were popular with income-hungry Chinese pensioners, but the falls in Chinese stocks means that many are now hitting their “knock-in” level, triggering further sales.

India overtook Hong Kong to become the world’s 4th-largest stock market. While there was no specific news, investors were buoyed by the prospect of strong economic growth and expectations of rate cuts. Meanwhile, oil prices rose as it looked like the Israel-Hamas fighting would drag on, disrupting supply.


In Tokyo, the Nikkei came within 7% of its all-time high, set on the last trading day of 1989. The earthquake that struck Noto failed to dampen enthusiasm for Japanese stocks; if anything it bolstered expectations that the Bank of Japan will keep interest rates ultra-low. Japan also launched a tax-free savings wrapper (similar to the UK’s ISA) which spurred Japanese savers to invest.


January is named after the ancient Roman god Janus, who has two faces. It’s an appropriate trait for January 2024, as some areas did well (technology, the US, Japan) and others poorly (small-caps, China, bonds). The market is in a state of uncertainty ahead of central banks’ decisions on the future path of rates. For investors, it is wise to use a diversified portfolio to avoid getting caught out by unexpected news – like Janus, the future can have two faces.