Optimism and positive sentiment surrounding earnings and growth estimates fueled equities in January, lifting equity indices to new highs. The S&P 500 achieved its 10th consecutive monthly gain in January, the longest 11-month winning streak for the index since January 1959.
Stocks receded towards the end of January as rising interest rates and the onset of inflationary tensions elevated market volatility. Bonds pressured U.S. stocks as the two-year Treasury yield reached 2.12 percent, compared with the 1.76 percent dividend yield on the S&P 500. The 2-year Treasury yield surpassed the S&P 500 Index dividend yield for the first time in nearly ten years.
Even at the levels that the major indices have risen to, stocks are still fairly valued historically per the S&P 500 Index earnings estimates at 18 times for 2018. January 2018 was the best January for the stock market since 1997.
Sources: S&P, US Treasury, Bloomberg