Welcome to the monthly market update from Midland Wealth Management. I am Chris Zabel, Portfolio Manager. Today, I wanted to take a few minutes to give you an update on the markets for the month of January.
Market Overview
The stock market started the year off relatively strong, with the S&P 500 gaining 2.8% in January. The S&P 500 was bolstered by relatively strong earnings and consumer spending despite a sharp selloff after a new AI model from China shocked investors. Mid- and small-cap stocks outperformed large-caps, with S&P MidCap 400 up 3.9% and S&P SmallCap 600 up 2.9%
Corporate Earnings
Corporate earnings releases for the fourth quarter of 2024 kicked off in January. With about 36% of companies in the S&P 500 reporting, earnings grew by 7.8%, and sales grew by 4.5%. The Magnificent 7 so far have had good earnings, but AI expectations have underwhelmed investors. Stock valuations remain high, with the S&P 500’s forward price-to-earnings ratio at 25.7. Analysts are still projecting earnings to grow by 14.3% in 2025.
GDP
The first estimates for annualized fourth quarter GDP came in at 2.3%, lower than third quarter’s 3.1% and slightly below expectations of 2.6%. Growth was driven by consumer spending, but change in private inventories negatively contributed as companies may have not front-loaded inventories ahead of any potential tariffs. Expectations are for GDP growth to slow in 2025.
Jobs Market
The U.S. labor market continued to show resilience, with the economy adding 256,000 jobs in December, surpassing economists’ projections of 164,000. The unemployment rate edged lower to 4.1% from 4.2%. January is expected to see a slowdown in jobs growth, with the economy adding 170,000 jobs and unemployment remaining at 4.1%.
Federal Reserve & Bond Market
On January 29th, the Federal Reserve held the federal funds target rate in a range of 4.25%–4.50%. The Fed will continue to assess incoming data and economic outlook when considering additional adjustments to the target range of the federal funds rate. Expectations are for one to two additional rate cuts due to ongoing concerns for persistent inflation.
The 10-year U.S. Treasury yield fell in the second half of January to 4.54% as there was a flight to safety during the most recent market volatility.
Outlook
Looking ahead, investors will remain attentive to labor market data, Federal Reserve policy shifts, fourth quarter corporate earnings, and what impact the recently announced tariffs will have on the economy and inflation.
Thanks for joining me for this month’s market update.
