The 1% Move Report

Timely commentary on market performance whenever the S&P 500 changes more than 1% in a day.






Wealth Management — January 31, 2024

Source: Bloomberg, Morgan Stanley Wealth Management Global Investment Office (GIO). Data as of January 31, 2024.

What Happened in the Markets?

  • The S&P 500 Index fell 1.6% Wednesday to end the day at 4,845.65, having gained 1.6% thus far in 2024. 
  • Zero of the 11 S&P 500 sectors were higher on the day, as Health Care (-0.1%) and Utilities (-0.3%) were the strongest-performing S&P 500 sectors, while Communication Services (-3.9%) and Information Technology (-2.1%) performed weakest.
  • By the 4:00 p.m. equity market close, the US 10-year Treasury yield decreased 10bp to 3.93%; WTI crude oil prices decreased 2.7% to $75.74 per barrel; and gold increased 0.1% to $2,038.25 per ounce.

Why Did This Move Happen?

  • At today’s January FOMC meeting, the Fed held rates steady at 5.25%-5.50% for the fourth consecutive time. The Fed provided no clear guidance on timing of cuts, indicating that it may require further evidence that inflation is moving sustainably toward the 2% goal. 
  • Additionally, during a busy week of fourth-quarter earnings reports, results from several leading Tech companies fell short of investors’ expectations. In particular, the Magnificent Seven names face a high bar, given 2023 and early 2024's solid outperformance and now-elevated valuations.
  • Moreover, the regional banking sector experienced renewed concerns, as New York Community Bancorp declined more than 40% after reporting a loss, cutting its dividend, and increasing its loan-loss provisions. The company is adjusting to higher regulatory standards due to acquiring assets from Signature Bank’s collapse last March.

S&P 500 vs. 50-, 100-, and 200-Day Moving Averages

Source: Bloomberg and Morgan Stanley Wealth Management GIO. Data as of January 31, 2024.

How Does the Move Relate to Our Tactical Positioning?

  • With the S&P 500 still firmly above MS & Co.’s US Equity Strategist Mike Wilson’s S&P 500 base-case price target of 4,500, we expect that the equity market may range-trade over the coming 12-month tactical horizon. The GIC maintains a tactical underweight to equities due to elevated relative valuations. Today’s move does not meaningfully impact the GIC’s outlook or alter their recommended tactical positioning. 
  • Please find more information on the GIC's tactical positioning on the next two pages and reach out to your Morgan Stanley Financial Advisor to discuss portfolio strategies. For long-term investors, we caution against making substantial strategy changes based on short-term volatility.


US: We remain uncertain that forward earnings estimates are accurately discounting the most recent developments of a strong US dollar, rising oil prices, maturing US fiscal stimulus and an increasingly tapped-out US consumer. Additionally, we expect that Fed actions in 2024 may result in a “higher-for-longer” rate scenario. Our preference is for defensive and secular-growth equities with quality balance sheets. 

International Equities (Developed Markets): The mix of high and sticky inflation, existential risks associated with Russia/Ukraine and the European Central Bank's position that it has limited tools to help, suggest that the odds of recession are over 50%. Developed market exposure should skew toward commodities and materials exporters, especially those in the Asia/Pacific region, including Japan.

Emerging Markets: Recent softness in China, including macro uncertainty and deflationary pressures, along with growing opacity around policy direction, have caused concern for the country’s growth path. With global growth concerns potentially mounting, we have neutralized a previous overweight to emerging markets.

The Global Investment Committee's Tactical Asset Allocation Reasoning

Source: Morgan Stanley Wealth Management Global Investment Office as of September 22, 2023.

Fixed Income

US Investment Grade: While markets had aggressively priced the Fed's hawkish rhetoric, recent bank concerns have brought in pricing of rate cuts through early 2024. We are taking a more balanced risk-reward approach and have added to large underweight positions. With continued Quantitative Tightening ahead, execution risk remains elevated, as do the risks from sticky services inflation. However, bonds still offer decent relative value and the potential for portfolio hedging. Moreover, we expect equity-fixed income correlations to decrease in the event of an earnings recession.

International Investment Grade: Central banks’ hawkish pivots have prompted a material move in global nominal rates. While timing and catalysts are still hazy, negative-yielding debt has largely vanished in recent months. Prospects are brightening for fixed income investors, with opportunities to invest in local currencies that are expected to strengthen against the US dollar. Nevertheless, our benchmark and tactical asset allocation model continue to allocate 0% to this asset class.

Inflation-Protected Securities: TIPS yields have moved up, as realized inflation remains near a 40-year high and geopolitical uncertainties add pricing pressures. Even with real yields now positive, valuation is not compelling in comparison to US investment grade fixed income. Moreover, our benchmark and tactical asset allocation model continue to allocate 0% to this asset class.

High Yield: We have eliminated our exposure to the equity-like asset class to reduce equity beta of portfolios. High yield bonds rallied aggressively after the unprecedented provision of liquidity from the Fed and fiscal stimulus from Washington. However, there appears to be limited upside potential and much downside risk to investing in riskier products, given the current market environment. Moreover, our benchmark and tactical asset allocation model continue to allocate 0% to this asset class.


REITS: With real interest rates now positive and services inflation remaining quite sticky, we would need to be cautious and selective in adding to this asset class. For now, we remain underweight.

Commodities: Global central banks have successfully brought commodity prices back to late-2021 levels. Supply chains for goods have been close to restored, which has helped to relieve some pressures on inflation coming from industrial metals and auto parts. That said, structural disruption in energy and global agricultural commodities remains severe and may take multiple quarters to cure. Semiconductor trade has been down since the CHIPS Act was enacted.

Hedged Strategies (Hedge Funds and Managed Futures): The current environment appears constructive for hedge fund managers who are good stock-pickers and can use leverage and risk management to amplify returns. We prefer very active and fundamental strategies, especially high quality, low beta, low volatility and absolute return hedge funds.

Morgan Stanley & Co.’s Key Market Forecasts

Source: Bloomberg and Morgan Stanley Wealth Management GIO. Data as of January 31, 2024.

Market data provided by Bloomberg.

Dallas Federal Manufacturing Index is released every month. It reflects overall business conditions and activity in the Texas' manufacturing sector.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the 17US dollar against a subset of the broad index currencies that circulate widely outside the US.

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