Monthly Investment Commentary & Economic Outlook
February 1, 2024
Equity markets were mixed in January, as the S&P 500 was up +1.68%, US small caps -3.95%, US mid-caps -1.71%, international developed +0.27%, and emerging markets -4.23%1. The US Aggregate Bond Index declined -0.27% in January1.
On 1/5/24, after a large rise in equity markets in December 2023, we trimmed equity exposures for most client portfolios back down to target equity allocations. Valuations had become less compelling and sentiment among many investors had become more optimistic, which we thought could increase the risk of a short-term decline in equity markets if an unfavorable news item were to emerge.
Later in mid-January, data was released indicating that inflation, as measured by the Consumer Price Index (CPI), rose +3.4% year-over-year (YoY) in December 2023, a modest acceleration from the +3.1% YoY inflation reading for November 20232. Overall, we continue to believe that inflation will continue its general downward trend towards the US Federal Reserve’s 2% inflation target over time, driven primarily by a moderation in residential rent inflation and secondarily by a potential relative stabilization in oil prices. While unfortunately we don’t anticipate prices to broadly come down in the economy, we do expect that a moderation in the rate of inflation (prices rising at a slower rate) will continue to be supportive of equity markets and result in positive equity returns for 2024.
The 10-year Treasury yield (10yrTy) rose in January from 3.88% to 3.99%, causing Treasury bond prices to decline1. Also on 1/5/24, after the 10yrTy had come down from 4.98% and Treasury bond prices had risen, we reduced our exposure to Treasury bonds with a 7-10 year maturity in favor of more exposure to Treasury bonds with a 1-3 year maturity1. This should help to reduce short-term volatility, or price fluctuations, on the fixed income side of client portfolios. If the 10yrTy were to rise significantly above 4.18% (our 2024 year-end forecast), we would likely increase the average bond maturity for most clients.
External sources: Refinitiv data1, US Bureau of Labor Statistics2
For more information about our investment philosophy, see MTC Wealth Management.
Non-deposit investment products available through Members Trust Company are not deposits of or guaranteed by the trust company, a credit union or credit union affiliate, are not insured or guaranteed by the NCUA, FDIC or any other governmental agency and are subject to investment risks including possible loss of the principal amount invested. Members Trust Company, owned and managed by America’s credit unions, is a special purpose federal thrift regulated by the Office of the Comptroller of the Currency. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance is not indicative of future results. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Any opinions expressed are those of the presenter and do not necessarily reflect the position of Members Trust Company. The information above is obtained or compiled from sources we believe to be reliable. We Do Not Guarantee that such information, will be free from errors, omissions, whether human or mechanical, nor do we guarantee their timeliness, accuracy, or completeness.
