The January Effect Took Shape For Stocks In 2023, Now What?

The January Effect is the perceived seasonal tendency for stocks to rise in that month

Author

Mark Roussin
February 06, 2023

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Market Talk ⏪

Now that January is in the books, we can now say that was a month to remember, especially for those stocks within the Nasdaq. The Nasdaq finished the month up nearly 11%, making it the best January performance since 2001.

The Dow Jones Industrial however, lagged the Nasdaq as it was up 2.8%. Being up is great, but you can see the discrepancy between the two indexes, which tells you how strong the month was for technology stocks compared to more industrial focused stocks in the DJIA.

It was a return to the '“Risk On” trade at the start of the new year, but could all that be coming to a halt, or are we in the beginning of a new bull market?

Let’s first look at the technicals. Looking at the chart below, you can see that the S&P 500 is at an inflection point. Dating back to April 2022, the $4,182 level has been an area of support and resistance at different period. The level has played a role more than 5x in less than 12 months time.

Given that, also note that the RSI is sitting in the mid 60s, which the index hit in late March and mid-August, before selling off.

In terms of valuation, the S&P 500 has a PE ratio above 20x, which is very rich as compared to historical standards.

The run and momentum has been great, but a lot is pointing to a pullback in the markets here. Technicals and valuation, in addition to a much needed breather or period of consolidation, which if done, and then seeing the market move higher could signal a bull market.

I do not think we are quite there yet, but I do think a pullback is likely in the near-term.

Last week was a HUGE week for earnings, and I would describe them as mixed, at best. META had a huge week, gaining nearly 25% in 1-week. However, the earnings were not all that great, but investors were cheering the fact that Zuckerberg is finally pulling back on spending. The one thing we have seen in common is that CEOs all but confirm as slowdown in the second half of 2023. Some companies, like Intel, are choosing not to give full year guidance due to the uncertainty.

In addition to the jam packed week of earnings, we also got another rate hike by the Federal Reserve of 25 basis points. Commentary from the Fed Chair did seems dovish, which is one reason the markets ripped higher last week, as investors got the sense that the rate hiking party may be coming to an end after the next Fed meeting.

In term sof economic data, the jobs report surprised to the upside, stating that 517K jobs were added last month, well above the estimated 187K. Unemployment sank to 3.4%, the lowest on record over the past 55 years. One reason the jobs reports surprised was due in large part is all we have heard about lately is tech company after tech company conducting layoffs, In 2023 alone, tech companies have laid off nearly 100K workers.

Lastly, we continue to get signs of a weakening consumer, which could be the last straw before heading into a recession. US credit card debt surged 18.5% on the year, hitting a new record of $930.6 billion.

If we get a pullback, this is the week I see it happening, otherwise the S&P 500 will need to break through resistance and have a free run higher. The headwinds make that unlikely, but one must remember the market can be irrational at times.

In international news, tensions continue to remain high between Russia and Ukraine, along with Russia and the US. However, the US and China continue to see tensions escalate as the Chinese military was caught flying a surveillance balloon over the continental US, which for some reason was not shot down until it surveyed the entire country. The Chinese military stated that is was take weather data.

Deep Dive 📰

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Last week we published another DEEP DIVE, this time covering the semiconductor company Intel. You can check that out HERE.

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US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

When it comes to the Fear and Greed Index, the stock market is off to a fast start, and that continued for most of last week. Given the move in the market, we have now officially reached a level of EXTREME GREED, which should warn investors in the near term. Currently, the index has a reading of 76, which is roughly flat from the prior week reading of 69.

Earnings on Deck 💰

We just finished a HUGE week of earnings, but the reports keep pilling in this week, giving investors more insight into companies and their guidance for 2023.

Notable Analyst Updates 📝

  • Baird increases PT on STarbucks to $110, keeps HOLD rating

  • Morgan Stanley upgrades Colgate-Palmolive to overweight

  • HSBC increases PT of Halliburton to $57

  • Atlantic Equities downgrades Bank of America to neutral from overweight

  • CFRA downgrades Dollar Tree to SELL from hold

  • Citi upgrades FedEx to BUY from neutral

This Week 📆

Monday

  • No economic data

Tuesday

  • International trade

  • Fed Chairman Jerome Powell at Economic Club of Washington D.C.

  • Fed Vice Chair for Supervision Michael Barr

  • Consumer credit

Wednesday

  • Fed Governor Lisa Cook

  • Fed Vice Chair Barr

  • Wholesale trade

  • Fed Governor Christopher Waller

Thursday

  • Weekly unemployment claims

Friday

  • Consumer sentiment

  • Fed Gov Waller

  • Federal budget

Other Resources 📺

If you have not done so yet, definitely check out my growing YouTube community where I publish weekly videos on Dividend Stocks I am looking at.

Here is a look at my latest video in which I discuss 3 Undervalued REITs:

I also recently published a video titled 4 Discounted Dividend Stocks To Buy In February 2023:

Here are a few others of my latest videos:

If you enjoyed the newsletter, leave a LIKE and COMMENT down below. Also, if there is someone that could benefit from this newsletter, consider sharing it.

Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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