January’s Monthly Review
Feb 12, 2018
The S&P 500 added another 5.6% in January, its best month since March 2016, and tallied 14 new record closes, the most in a month since 1955. According to Thomson Reuters, 80% of companies that reported in January posted earnings that exceeded expectations. The S&P 500 has now strung together 10 consecutive monthly gains, the longest run since 1959. However, volatility reemerged late with the index enduring its most volatile three days since the election. In part, the nerves were driven by an acceleration of the sovereign sell-off that began last September. The 2-year Treasury yield rose 26 bps to a new cycle high of 2.14%. The 5-year yield finished up 31 bps at 2.51%, the most yield since April 2010, and the 10-year yield climbed 30 bps to 2.71%, its highest since April 2014. Each change was the biggest since the election. Additional signs of improving growth and prospects for an extra boost from tax cuts reawakened markets to the reality that the days of easy global monetary policy may be numbered. That reality was reaffirmed by the upbeat tone in the Fed’s January Statement and fed funds futures ended January pricing in a 78% chance of three 2018 hikes.