January performance was a good start to the year for many trend-followers. Our sector trend measures suggest a good performance month that looks to continue into February. The fundamental themes concerning growth and inflation at the beginning of the year continue although with different levels of intensity.
The US stock market trends continue; nevertheless, the end of the month provided a reminder that markets can go both up and down. The bond sell-off has intensified and is affecting debt markets around the world. Similarly, the dollar decline continues as traders expect higher global growth and central banks around the rest of the world to follow Fed behavior. Base metals continue to trend higher on the global growth theme while gold is rising in response to the dollar decline. Energy markets have responded to growth and weekly inventory declines although a surprise increase in inventory at the end of the month has added volatility to the market. Commodities have continued to show a more mixed picture; however, corn, wheat, and soybeans are all moving higher.
The trends within and across sectors are consistent with fundamentals and show strong signals across a wide range of time-frames. Given the number of trends and their strength, trend-following systems should continue to profit in February.
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