Will the Fed Pivot Support Markets?

Last Edited by: LPL Research

Last Updated: January 04, 2024

Video Transcript

Jeffrey Roach (00:00):

Hi, I'm Jeffrey Roach, Chief Economist for LPL Financial and this latest addition to the Street View. I'll share some charts we recently highlighted on our blog. George Smith, our Portfolio Strategist here at LPL Research, did a really interesting blog post about the seasonal variation of stock prices. I'll highlight a few things that investors should think about. Plus, I'll put a plugin for our newly designed blog housed at LPL.com under the Research tab. First, you can see from the chart that January seasonals are historically positive, but this first month of the year is just a middle of the road month, ranking seventh of all months. Over the last five years, the returns over the past 10 and 20 years, however, are almost flat ranking eighth over those periods. Second, in this chart, you'll see looking at slightly longer seasonal patterns. The January and February period tends to have weaker performance compared to other two-month return windows, ranking between nineth and eleventh of all such two-month windows over various time horizons. Much of this is due to a weak February, dragging down the two-month return with February being the second worst month for stocks just behind September. So you can see the beginning periods of the year are typically not the strongest months for equities. Third, despite the lackluster seasonal support for the first two months of the year, investors could get a nice surprise out of the latest Fed Pivot, and it boils down to a few macro trends that put the Fed in a sweet spot. The job market is starting to cool down and inflation will likely ease further in the coming months. This environment gives the Fed some leeway to prepare markets for upcoming rate cuts. That will certainly be welcome news for markets after an aggressive tightening campaign the last year and a half. Well, that's all for now, but please continue to follow us on social media for up-to-date analysis on the investment landscape.

Hi, I'm Jeffrey Roach, Chief Economist for LPL Financial and this latest addition to the Street View. I'll share some charts we recently highlighted on our blog.

First, you can see from the chart that January seasonals are historically positive, but this first month of the year is just a middle of the road month, ranking seventh of all months. Over the last five years, the returns over the past 10 and 20 years, however, are almost flat ranking eighth over those periods.

Second, in this chart, you'll see looking at slightly longer seasonal patterns. The January and February period tends to have weaker performance compared to other two-month return windows, ranking between nineth and eleventh of all such two-month windows over various time horizons. Much of this is due to a weak February, dragging down the two-month return with February being the second worst month for stocks just behind September.

Third, despite the lackluster seasonal support for the first two months of the year, investors could get a nice surprise out of the latest Fed Pivot, and it boils down to a few macro trends that put the Fed in a sweet spot. The job market is starting to cool down and inflation will likely ease further in the coming months. This environment gives the Fed some leeway to prepare markets for upcoming rate cuts.

Please continue to follow LPL Research on Twitter, LinkedIn, and YouTube for more insight.

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