January was a strong month for stocks—which historically speaking portends a good year ahead.
- Stocks rose on the last day in January, bringing the Dow Jones Industrial Average up nearly 3%, the S&P Index 500 up 6%, and the Nasdaq Composite Index up almost 11%.
- The rally comes from the confidence that interest rate increases will continue to slow and that inflation will continue to cool.
- The stock jump has given the S&P 500 its best January since 2019 and the Nasdaq Composite its best January since 2001.
Why it’s news
January was a good month for U.S. stocks as many rose on Tuesday to finish the month out strong following a tough year in 2022.
The Dow Jones Industrial Average jumped nearly 3%, the S&P 500 went up 6%, and the Nasdaq Composite went up almost 11%.
A good start in January could signify how the rest of the year will flow. Of the five instances in which the S&P gained more than 5% in January after a negative year, the benchmark index rose 30% for the year on average, says Carson Group’s Ryan Detrick in a tweet.
Increasing confidence that interest rates have reached the highest level and that inflation will soon slow down has led to a significant boost in stocks across the market.
While many investors are bullish that interest rates will begin cooling and inflation could be coming to an end, others are suggesting that January was a good month but that it is still too early to tell how the rest of the year will go.
“With unemployment at 3.5% and the economy still adding more than 200,000 jobs per month, it’s way too premature to suggest that the Fed’s work is done,” says Hans Olsen, chief investment officer of Fiduciary Trust Company. “Investors’ expectations are getting a bit ahead of themselves. We’re in the early stages of normalizing inflation—the last 100 yards will be tough.”