The year started with financial markets witnessing a shift in sentiment following
the gains from the December rally. While the beginning of the month hinted at a
pull-back, a reversal occurred as the month progressed, ultimately concluding with
global indices finishing in positive territory.
In the United States, the focal point of the month was the highly anticipated Federal
Reserve policy meeting. Market participants closely analysed the meeting for any
indications of potential interest rate adjustments. However, in line with
expectations, the Federal Reserve opted to maintain its policy interest rate within
the range of 5.25% to 5.50% for the fourth consecutive meeting. This decision was
made against the backdrop of a gradually diminishing inflationary environment.
Although the Federal Open Market Committee removed its tightening bias from its
statement – signalling a shift in stance – it underscored a cautious approach to rate
cuts. The Committee conveyed that a reduction in the target range would only be
considered when there is greater confidence in inflation moving sustainably
towards the 2% target. This stance left market participants somewhat
disappointed, resulting in major US indices closing the last day of the month in
negative territory.
Despite the negative conclusion to the month, US indices still ended the month in
the green with the S&P 500 and Dow Jones increasing by +1.7% and +1.3%,
respectively. Across the pond, European stocks had a slightly better month
increasing by +2.9% on the back of the European Central Bank (ECB) leaving
interest rates unchanged but appearing to signal a more dovish outlook. Thus,
developed economies continued to outpace their emerging counterparts with the
MSCI World USD Index (i.e. Developed Markets equities) outperforming the MSCI
Emerging Market USD Index by c. 5.8%, with the indices producing monthly returns
of +1.2% and -4.6%, respectively.
Locally, the South African Reserve Bank (SARB) maintained a cautious stance on
interest rates amidst heightened inflation risks. Any potential interest rate
adjustments are only expected to materialize towards the conclusion of 2024. This
is contingent upon the evolving inflation landscape, as well as global developments
in interest rates. As a result, the FTSE/JSE All Share Index unperformed global
equity markets, declining by -2.9% for the month. The performance was impacted by
a continued decline in resource counters, with the resources sector decreasing by
-5.9% for the month. The listed property sector however negated some of these
losses and held up well, increasing by +4.1% for the month.
As the year unfolds, the juxtaposition of global resilience and localized challenges
underscores the need for investors to maintain a diversified and vigilant approach.
Navigating the evolving landscape demands a keen awareness of both international
and domestic nuances, ensuring a well-informed and agile response to the
intricacies shaping the trajectory of financial markets in the months ahead.
Article “Decoding the month – January 2024” by Corion Capital