What January Effect
I am not certain there is a pronounced January effect this year. Having cited the phrase, most markets are relatively strong at the start of this year with some exceptions.
The Tech sector was a bit wobbly towards the end of last year. Tech appears to be on firm footing once again. However, there are some noticeable differences. The relentless run up appears to have run its course for the moment. Nvidia has been in a relatively tight trading range for some time. At about $188 at present, the level is quite away from the high of $212.
Many other Tech companies away from some of the key names appear to be benefitting more in this environment. The equity market is in a broadening phase. In order to demonstrate this, one needs to just look at the level of the Dow Industrials. Yet even Small Caps are hitting their stride in the current landscape. All indexes are at or near their all time highs. There is every reason to believe that the Dow at 50,000 is just days away.
The backdrop for the current performance is a relatively strong economy and a consumer that does not quit spending. We have heard a lot of commentary about the K shaped economy and there is a lot of truth to the characterization.
Prices continue to climb in most categories except for fuel. The average price for a new vehicle has now surpassed the $50,000 mark. This level is not affordable for many. Homes, if you are successful about finding one, have become a bit more approachable with a mortgage rate at or below 6%. Inventory remains the critical factor.
Employment and unemployment are in a tight range. Despite some year end layoffs, the unemployment rate has not soared even though there has been an uptick. There is some discussion that AI is putting a damper on new hires fresh out of college. This factor is hard to separate out and the factor is still in its early stages.
Most pundits have concluded with the strong GDP growth and stable but softening employment picture that the Fed will be on hold in the near term. Most see more cuts in the future after May.
One of the more interesting topics that has surfaced in the municipal market is the proposed wealth tax initiative in California. The so-called billionaire’s tax is targeted at 5% of assets as defined. The tax would be relatively hefty even though it is being billed as one time and would be payable over five years. Once instituted, most taxes do not go away.
Of course the tax would apply to a very small universe. The top 1% in the state pay 40% or more of the income tax collected. Some of the taxpayers already moved before the retroactive application date of January 1. 2026.
The ballot initiative to be voted on in November has to be drafted and must pass legal muster for its language. This process is expected to be completed by mid year.
Despite its populist nature, there is and will be opposition to the initiative. Spending power by those against will be brought to bear. One of the added factors is that the Governor is opposed. California has the most billionaires in the nation. One only has to look to the Bay area. We will see if the state retains its special status. I am certain that other states would be happy to embrace the disaffected elite group.
The municipal market continues to function well. Supply has been readily absorbed. I am not certain how many days and weeks levels in the municipal market have remained unchanged while volatility is swirling around us. Flows to the mutual funds and the ETFs have been positive.
We have just begun budget proposals and deliberation time. With the federal Medicaid cuts and the lack of an ACA extension now in effect, states will be hard pressed on the expenditure side. Counties that have the healthcare responsibility will also be likely to feel the pressure. In New York, there are proposals to provide more childcare and housing initiatives to fulfill policy mandates. We await more precise plans for how these benefits will be funded at the state and local level.
Three years of solid stock market performance has been tallied. Let’s make it four.
Have a great year.
John Hallacy
John Hallacy Consulting LLC
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