Global equities are off to a strong start in 2023, driven by declining U.S. inflation and China’s reopening. In the U.S., the Nasdaq rose 10.7% in January, ahead of the 6.3% rise in the S&P 500 during the same period. Small cap stocks led the U.S. market’s advance, with growth outperforming value. Cyclical sectors such as communication services and consumer discretionary outperformed in January, while defensive sectors such as consumer staples and utilities declined. U.S. inflation dropped again in December to 6.4% year-on-year, down from a 9.0% peak in June 2022. Consumer spending remained positive in Q4 2022, and jobless claims fell, while housing data continued to decline. Treasury yields declined in January, predominantly at the longer end of the curve as market participants anticipated a slower trajectory of rate hikes. The S&P 500 capped its best January in four years, coming off a challenging 2022.

International equities outperformed U.S. equities in January. The dollar continued lower from its peak in late-September. Chinese markets rallied, returning over 11% in January as the nation reopened following COVID-19 lockdowns. The gradual comeback in China could spur economic growth, potentially providing support for the global economy during 2023. In Europe, positive economic surprise data lifted investor sentiment, while wider interest rate differentials benefited the euro versus the dollar. We expect continued improvements outside of the U.S. this year.

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