Stocks closed January generally higher. Each of the benchmark indexes listed here ended January higher, with the exception of the small caps of the Russell 2000. Historically, positive market returns in January are often a precursor to favorable market performance for the remainder of the year. Of course, past performance is no guarantee of future results. Despite the end results, January proved to be a month of ebbs and flows. It began with stocks closing in the red, only to pick up momentum throughout the rest of the month. 

The most recent inflation data showed prices inched higher in December after falling the previous month. Both the Consumer Price Index and the personal consumption expenditures price index increased, both monthly and annually. However, core prices, excluding the more volatile food and energy indexes, declined over the 12 months ended in December. 

The Federal Reserve met in January and maintained the federal funds target rate range at its current 5.25%-5.50%. According to the Fed, the economy continued to show strength and job gains were steady. While noting that inflation had slowed, it remained above the Fed's target of 2.0%, all of which bolstered the Fed's reluctance to begin lowering interest rates. 

The economy has proven resilient despite the ongoing war in Ukraine and turmoil in the Middle East. Fourth-quarter gross domestic product expanded at an annualized rate of 3.3%, according to the initial estimate. Consumer spending, the largest contributor to GDP, was 2.8%. 

Job growth remained steady, with 216,000 new jobs added in December, an increase from November's 173,000. Wages continued to rise, increasing 4.1% over the last 12 months. Unemployment claims increased from a year ago (see below). 

Fourth-quarter earnings season for S&P 500 companies has been lackluster so far. While the majority of companies have yet to release earnings data, the percentage of S&P 500 companies that have reported positive earnings surprises is below average, according to FactSet, while actual earnings reported have been below estimates in aggregate. Companies in the financial sector have been particularly subpar. Roughly 25% of the S&P 500 companies have reported fourth-quarter earnings. Of these companies, 69% exceeded estimates, which is below the five-year average of 77%. In aggregate, companies reported earnings that are 5.3% below estimates, which is below the five-year average of 8.5%. 

Sales of existing homes retreated in December, primarily due to lack of inventory, high prices, and advancing mortgage rates. Sales of new single-family homes increased 8.0% in December and 4.4% over the past 12 months. 

Industrial production ticked higher in December after no growth in November and an 0.8% decline in October. Manufacturing ticked up 0.1% in December but declined 2.2% in the fourth quarter. Excluding motor vehicles and parts, factory output declined 0.1% in December and 0.3% in the fourth quarter. According to the latest survey from the S&P Global US Manufacturing Purchasing Managers' Index™, the manufacturing sector slipped further into contraction in December. The services sector saw business accelerate marginally. 

Eight of the 11 market sectors ended December higher, led by communication services and information technology. Last month saw real estate, consumer discretionary, materials, and utilities decline. 

Bond prices gained some momentum at the end of January, particularly following the Fed's decision to maintain interest rates for longer than some had expected. Despite the late-month surge in bond prices, 10-year Treasury yields generally closed the month higher. The 2-year Treasury yield fell nearly 11.0 basis points to about 4.21% in January. The dollar inched higher against a basket of world currencies. Gold prices rode a topsy-turvy month, ultimately closing lower. Crude oil prices advanced in January on the heels of production cuts and shipping interruptions in the Middle East. The retail price of regular gasoline was $3.095 per gallon on January 29, $0.233 above the price a month earlier but $0.394 lower than a year ago.

• Employment: Employment rose by 187,000 in July from June, less than the average monthly gain of 312,000 over the prior 12 months. In July, employment trended upward in health care, social assistance, financial activities, and wholesale trade. The unemployment rate edged down 0.1 percentage point for the second straight month to 3.5%. In July, the number of unemployed persons fell by 116,000 to 5.8 million. The employment-population ratio, at 60.4%, ticked up 0.1 percentage point, while the labor force participation rate, at 62.6%, was unchanged. In July, average hourly earnings increased by $0.14 to $33.74. Over the 12 months ended in July, average hourly earnings rose by 4.4%. In July, the average workweek edged down 0.1 hour to 34.3 hours.
• There were 228,000 initial claims for unemployment insurance for the week ended August 26, 2023. The total number of workers receiving unemployment insurance was 1,725,000. By comparison, over the same period last year, there were 206,000 initial claims for unemployment insurance, and the total number of claims paid was 1,343,000.

• FOMC/interest rates: The Federal Open Market Committee raised the federal funds target range rate by 25.0 basis points in July, bringing the target range for the federal funds rate to its highest level since 2001. The Committee noted that inflation remained elevated, while economic activity expanded at a moderate pace. Job gains have been robust, and the unemployment rate remained low. The FOMC statement indicated that the U.S. banking system was sound and resilient. Overall, the FOMC will base its decisions on available data and "will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

• GDP/budget: The economy accelerated at a notable pace in the third quarter, as gross domestic product increased 4.9%, according to the initial, or advance, estimate. GDP increased 2.1% in the second quarter. The increase in third-quarter GDP compared to the previous quarter primarily reflected a rise in consumer spending, private inventory investment, exports, federal, state, and local government spending, and residential fixed investment. Nonresidential fixed investment declined, while imports, which are a negative in the calculation of GDP, increased. Consumer spending, as measured by personal consumption expenditures, rose 4.0% in the third quarter, compared to a 0.8% increase in the second quarter. The increase in personal consumption expenditures reflected increases in goods (4.8%) and services (3.6%). The increase in fixed investment (0.8%) included a 3.9% advance in residential fixed investment (-2.2% in the second quarter). Nonresidential fixed investment ticked down 0.1% after increasing 7.4% in the previous quarter. Exports increased 6.2% in the third quarter after falling 9.3% in the second quarter. Imports increased 5.7% in the third quarter, significantly higher than the 7.6% decrease in the second quarter. Consumer prices increased 2.9% in the third quarter compared to a 2.5% advance in the second quarter. Excluding food and energy, consumer prices advanced 2.4% in the third quarter (3.7% in the second quarter). 
• The federal budget had a deficit of $171.0 billion in September, the last month of fiscal year 2023. The total deficit for the fiscal year was $1.695 billion, comprised of $6.134 billion of total outlays and $4.439 billion of total receipts. By comparison, the FY23 total deficit was more than 23.0% greater than the total deficit for FY22 ($1.375 billion). For FY23, individual income tax receipts totaled $2.176 billion, well below the $2.632 billion collected in the prior fiscal year. Corporate income tax receipts were also lower in FY23, at $420.0 billion, compared to $425.0 billion collected in FY22.

• Inflation/consumer spending: According to the latest Personal Income and Outlays report, consumer spending increased 0.7% in September, up from 0.4% in August. Personal income and disposable personal income rose 0.3% in September. Consumer prices rose 0.4% in September, the same increase as in the previous month. Consumer prices excluding food and energy (core prices), the preferred inflation indicator used by the Federal Reserve, increased 0.3% in September, up from the August increase of 0.1%. Over the 12 months ended in September, consumer prices increased 3.4%, the same increase as for the 12 months ended in August. Core prices rose 3.7% for the year ended in September, down from 3.8% for the 12 months ended in August. Over the last 12 months, prices for goods increased 0.9% and prices for services increased 4.7%. Food prices increased 2.7%, and energy prices decreased by less than 0.1%.
• The Consumer Price Index rose 0.4% in September compared to a 0.6% advance in August. Over the 12 months ended in September, the CPI advanced 3.7%, unchanged from the annual rate for the period ended in August. Core prices, excluding food and energy, rose 0.3% in September and 4.1% over the last 12 months. Prices for shelter were the largest contributors to the monthly all items increase, accounting for over half of the September gain. An increase in gasoline prices was also a major contributor to the all items monthly rise. While the major energy components were mixed in September, energy prices rose 1.5% over the month. Food prices increased 0.2% in September, as they did in the previous two months. For the 12 months ended in September, food prices rose 3.7%; shelter prices increased 7.2%; energy prices dipped 0.5%; gasoline prices rose 3.0%; new vehicle prices advanced 2.5%; and used vehicle prices fell 8.0%.
• Prices that producers received for goods and services increased 0.5% in September after rising 0.7% in August. Producer prices increased 2.2% for the 12 months ended in September, the largest increase since moving up 2.3% for the 12 months ended in April. Prices for goods rose 0.9% in September, the third consecutive monthly increase. Nearly three-quarters of the broad-based September advance in prices for goods was attributable to a 3.3% rise in prices for energy, with gasoline prices increasing 5.4%. Prices for foods increased 0.9% in September and 1.2% for the year. In September, prices for services advanced 0.3%, and 2.9% since September 2022.

• Housing: Sales of existing homes decreased 2.0% in September, marking the fourth consecutive month of declines. Since September 2022, existing-home sales dropped 15.4%. According to the report from the National Association of Realtors®, limited inventory and housing affordability continued to hamper home sales. In September, total existing-home inventory sat at a 3.4-month supply at the current sales pace, up from 3.3 months in August. The median existing-home price was $394,300 in September, down from the August price of $404,100 but well above the September 2022 price of $383,500. Sales of existing single-family homes dropped 1.9% in September and 15.8% from a year ago. The median existing single-family home price was $399,200 in September, down from the August price of $410,200 but above the September 2022 price of $389,600. 
• New single-family home sales jumped higher in September, climbing 12.3% above the August estimate. Overall, single-family home sales were up 33.9% from a year earlier. The median sales price of new single-family houses sold in September was $418,800 ($433,100 in August). The September average sales price was $503,900 ($522,700 in August). The inventory of new single-family homes for sale in September decreased to 6.9 months, down from 7.7 months in August.

• Manufacturing: Industrial production advanced 0.3% in September after advancing 0.4% in August. Manufacturing output rose 0.4% in September but was 0.8% below its year-earlier level. The output of motor vehicles and parts moved up only 0.3%, as motor vehicle assemblies were held down by the strike against three automakers. In September, mining increased 0.4%, while utilities decreased 0.3%. Total industrial production in September was 0.1% above its year-earlier level. 
• New orders for durable goods rose 4.7% in September after declining in each of the previous two months. Excluding defense, new orders increased 5.8%. Excluding transportation, new orders increased 0.5%. Orders for transportation equipment increased 12.7% following a 1.1% decline in August. Core capital goods orders, excluding defense and aircraft, advanced 0.6% in September following a 1.1% advance in August.

• Imports and exports: September saw both import and export prices increase for the third straight month. Import prices ticked up 0.1% following a 0.6% increase in August. Higher fuel prices drove the September increase. Despite the recent increases, prices for imports declined 1.7% for the year ended in September. Import fuel prices advanced 4.4% in September after rising 8.8% in August. Import fuel prices have not recorded a one-month decline since May 2023. Prices for nonfuel imports decreased 0.2% for the second consecutive month in September. Export prices rose 0.7% in September after advancing 1.1% in August. Higher prices for nonagricultural exports in September more than offset lower agricultural prices. Despite the recent advances, prices for exports decreased 4.1% over the past year. The 12-month drop in September was the smallest over-the-year decline since February 2023.
• According to the advance report, the international trade in goods deficit increased $1.1 billion, or 1.3%, in September. Exports of goods increased 2.9% from August, while imports of goods rose 2.4%. 
• The latest information on international trade in goods and services, released October 5, was for August and revealed that the goods and services trade deficit decreased $6.4 billion, or 9.9%, from July. Exports for August rose 1.6% from the previous month. Imports decreased 0.7%. Year to date, the goods and services deficit decreased $137.6 billion, or 20.7%, from the same period in 2022. Exports increased 1.1%, while imports decreased 4.3%.

• International markets: Inflation continued to fall in most major countries at the end of 2023. However, several central banks, including those of Japan, Germany, the European Union, Canada, and the United Kingdom are maintaining their current monetary policies. While Europe's economic growth hasn't quite kept up with the United States, it appears reasonably certain that the recession some feared will not come to fruition. The EU's economy was flat in the fourth quarter, Japan's economy declined 0.7%, Germany saw its economy recede 0.3%, while the U.K.'s economy dipped 0.1%. This is compared to the U.S. GDP, which expanded by 3.3%. For January, the STOXX Europe 600 Index rose 2.7%; the United Kingdom's FTSE was flat; Japan's Nikkei 225 Index gained 8.4%; and China's Shanghai Composite Index lost 6.0%.

• Consumer confidence: Consumers began the new year with a surge in confidence and restored optimism for 2024. The Conference Board Consumer Confidence Index® increased in January to 114.8, following a 108.0 reading in December. The reading was the highest since December 2021 and marked the third straight monthly increase. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, rose to 161.3 in January, up from 147.2 in the previous month. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, improved to 83.8 in January from 81.5 in December.