MONTH IN REVIEW
Following a loss of -2.39% for December (total return), SPX (the S&P 500) returned 2.78% (total return) in January. After returning 0.46% (total return) in December, NDX (the Nasdaq-100) returned 2.25% (total return) in January. The Russell 2000 returned 2.62% in January after a loss of -8.26% in December. SPX traded under its 50-day moving average during January but managed to reclaim this level near end of the month, which we will illustrate later in this note. Another notable datapoint from January was the release of December inflation data: Core CPI rose 0.4% month-over-month (M/M), matching the consensus. The Producer Price Index (PPI) rose 0.4% M/M, exceeding the 0.2% consensus. PCE rose 0.3% M/M, and Core Personal Consumption Expenditure (PCE) rose by 0.2% M/M. Both PCE and Core PCE matched the consensus.
Fixed income markets rallied modestly during the month of January. Both 10 & 30-year Treasury Bond yields moved slightly lower by end of the month, and both finished the month of January remaining well above their 200-day moving averages as yields remain elevated. The 10-yr closed at 4.54% to end the month, above the important 4.40% technical level. The 30-year Treasury yield ended the month at roughly 4.76%. Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so. Additionally, the 2/10 Treasury yield spread remained positive in January after its record-long inversion recently came to an end in the second half of 2024.
After the FOMC cut rates by an additional 25bps in December, the market got no cut in January after the Fed meeting which was near month-end. Moving into the remainder of 2025, the market is pricing in a total of 25bps of cuts for the year (one cut). The Fed continues to target 2% inflation as its goal and incoming inflation reports will likely continue to drive the dot plot. The Fed remains adamant that they are in no rush to adjust policy.
According to FactSet, the trailing 12-month P/E ratio for SPX is 28.4, which is above the 5-year average (24.3), and above the 10-year average (22.0). The forward 12-month P/E ratio for SPX is 22.1, which is above the 5-year average (19.8), and above the 10-year average (18.2). Finally, per FactSet, SPX is reporting year-over-year (YoY) revenue growth of 5.2% for Q4 2024, which is above the estimate of 4.6% on December 31. SPX is expected to report YoY earnings growth of 16.4% for Q4 2024, which is above the estimate of 11.8% on December 31.
Within commodities and currencies: WTI Crude Oil rose in January by 1.30%. Gold rose by roughly 6.60% in January. Finally, the US Dollar Index (USD/DXY) closed out the month near 108.40, which was roughly flat M/M.
VOLATILITY UPDATE
After closing out December at 17.35, the VIX Index slightly fell in January and closed out the month at 16.43. The 12-month high of the VIX Index was registered on 8/5/24 at 65.73. In 2022, the VIX averaged over 25. In 2023, the VIX averaged near 17. And in 2024, the VIX averaged near 15.50.
The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities. It is thought of as “The VIX Index of the Bond Market.“ After closing out December around 99, the MOVE Index fell in January alongside calmer yields and closed out the month near 92. Traders will continue to monitor this index to gauge potential future bond and equity volatility. Equities tend to favor a subdued MOVE Index.
Notable Charts
Source: Bloomberg, Morningstar Direct 2024. Past performance is not indicative of future results.
LOOKING AHEAD
Among other factors, the market will be adjusting to and watching the new administration, tariffs, inflation, earnings, yields, geopolitical risks, and the Fed outlook. On the inflation front, January’s CPI will be released on 2/12, and January’s PPI will be released on 2/13. Finally, the next FOMC meeting will take place on 3/18-3/19.
