Stableford Capital Insights

Stableford Market Commentary January 2024

All systems go?

Equities began the year up 1.6% in January on the back of strong economic growth and benign bond yields that hardly moved. The “soft-landing” narrative has taken root, and it seems everyone is a believer. On the surface this makes sense. GDP grew 3.3% in the fourth quarter, while core PCE inflation fell to 2.9%

Exhibit 1—Equities Up 1.6% in January

Exhibit 2—Bond Yields Barely Budged

Things are going well, no doubt. But is all as well as it seems? Once again equities are very narrow, with a handful of large capitalization stocks leading the charge. However, the S&P 500 Equal Weight Index is basically unchanged for the year, up 20 basis points. The lack of breadth is concerning as it would seem that with a healthy economy and rates now closer to 4% vs. 5% back in October a broader swath of companies would be participating.

Similarly, the Russell 2000 (small cap index) was down 4% during January. Small caps are known for their sensitivity to rates, so it is odd that they’re not acting better given the decline in rates since October. Perhaps the market sleuths are sniffing something else out?

Exhibit 3—Russell 2000 Down 4% During January

Lies, damn lies, and statistics.

We’ve been doing the sleuthing ourselves—green eyeshade style. The January U.S. payroll data (released February 2) was universally seen as strong, continuing the soft-landing narrative. While the headline was certainly strong at 353,000 vs. the 185,000-consensus forecast for the establishment survey, there are some weak spots if you look at the details.

First off, the household survey (each US payroll release uses a household survey—which focuses on individuals and an establishment survey—which focuses on businesses) was negative for the second month in a row: December jobs contracted -683,000 and January -31,000. Additionally, there has been no job growth at all in the household survey from August to January, while the establishment survey registered 1.48 million new jobs. This is an enormous disconnect for two large surveys that generally (should) move in a similar direction. We know that historically the household survey is better at predicting turns in the economy. We’ll see if it is right this time.

That said, tech earnings are good and since the Magnificent 7 are heavily weighted in the S&P 500, the index is going up. We’re believers, the economy does not appear to be falling off a cliff. But with an expensive market and high expectations, we are attuned to the potential risks as well.

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This market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.