Stocks started the year off strongly, building on the gains seen in November and December. The Canadian equity market ended the month higher, while the S&P 500 and the Dow Jones Industrial Average achieved new all-time highs in January.

Technology stocks rallied, which pushed the tech-heavy Nasdaq Composite and Nasdaq 100 indices higher. The decision by the Bank of Canada and Federal Reserve to keep their benchmark rates steady in January prompted the markets to reassess the likelihood of rate cuts, with March bets seemingly being ruled out.

Canada’s benchmark S&P/TSX Composite Index was 0.3% higher in January, as seven of its underlying sectors were positive during the month. The information technology sector posted a 6.7% gain for the month, while the telecommunication services and industrials sectors rose by 2.8% and 2.1%, respectively. Small-cap stocks, as measured by the S&P/TSX SmallCap Index, were down 0.5% for the month.

The U.S. dollar rose by 1.4% versus the loonie during the month, boosting returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms. U.S.-based stocks, as measured by the S&P 500 Index, rose 3.0% in January. Seven of the underlying sectors were in the green for the month, with the telecommunication services and information technology sectors as the leading contributors, gaining 6.3% and 5.4%, respectively. International stocks, as measured by the FTSE Developed ex-US Index, rose 1.2% during the month, while emerging markets fell 2.3%.

The investment grade fixed income indices we follow were down in January. Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, fell 1.4% during the month, while the key global investment grade bond benchmark and global high-yield issues were down 1.4% and 0.2%, respectively.

Turning to commodities, natural gas prices fell 16.5% during the month, while the price of a barrel of crude oil rose 5.9%. Copper prices rose 0.4%, while silver and gold fell 3.8% and 1.1%, respectively. Inflation in Canada rose to 3.4% year-over-year in December, led by an acceleration in transportation and shelter costs. The Canadian economy added 100 jobs in December, as the nation’s unemployment rate held steady at 5.8%. The Bank of Canada’s key interest rate remained steady at 5% in January.

U.S. nonfarm payrolls increased by 216,000 in December, as the unemployment rate held steady at 3.7%. The consumer price index rose to 3.4% year-over-year in December. The U.S. personal consumption expenditures price index increased 0.2% month-over-month in December. The U.S. economy expanded an annualized 3.3% in Q4 2023. The federal funds rate was unchanged in January at a target range of 5.25% to 5.5%.

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