Written by Isaac Robinson
After rising 24% in 2023, the SP500 continued its strong performance into the new year, climbing 3.8% in January. This increase was driven by several positive earnings reports from tech firms such as Netflix, which led investor optimism about the tech sector. Investors also reacted positively to new data about the US economy. The S&P Global Flash US Manufacturing Index showed that US manufacturing, which had been in a period of contraction since April 2023, was now expanding, and the S&P’s Services Index indicated that US services were now expanding at a faster rate. Finally, the US Department of Commerce released its estimate of GDP at 3.3%, significantly higher than consensus estimates of around 2%.
Australia finished off 2023 by rising 12% in the last two months of the year. However, this trend did not continue into the new year with the ASX200 falling by 0.36% in January. The market fell in the first half of the month as investors continued to be pessimistic about the future of China. However, the market recovered in the latter half of the month as investors globally grew enthusiastic about the tech sector. In addition, the People’s Bank of China made attempts to support their economy by lowering the level of cash reserves Chinese banks must hold, providing liquidity to the market. The market in Europe followed a similar pattern to Australia, falling in the first half of the month before recovering. Stocks rose as the European Central Bank decided to not increase rates, business activity in the Eurozone began contracting at a slower rate, and business activity in the UK continued to expand. Overall, the STOXX Europe 600 finished the month up 1.32%.
In China, the downward trend that began in April last year continued through the month of January, with the market falling by 3.4%. As previously mentioned, China is currently experiencing a wide range of problems including a crisis in their real estate sector, deflation, high levels of debt, a falling birthrate, and a shrinking workforce. However, Chinese stocks rose in late January as the People’s Bank of China (PBOC) stated that it would cut the reserve ratio requirement for banks by 50 basis points. This allows Chinese banks to utilise funds that were previously tied up in cash reserves. The PBOC’s Governor also stated that the bank would release policies aimed at improving commercial property loans.