By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Yesterday was a strong day for the Nasdaq 100 index capping off an incredible January 2023. In fact, the WSJ is heralding this performance (+11.5% for the initial month of 2023) as the strongest beginning to a calendar year for the Nasdaq since 2001, when the index rose an amazing 14.2%. But wait! Didn’t that performance occur within a bear market environment (3/2000 – 10/2002) in which the Nasdaq 100 would eventually decline 83% from start to finish? Is this month’s performance the start of a bull market rally or a great month in the continuing saga of last year’s bear market in which the Nasdaq declined -32.5%?

Market participants have certainly cheered every anecdotal piece of evidence potentially indicating that inflation’s peak is long behind us. They fully anticipate that the Fed will soon come to their collective senses by stopping the Fed Fund Rate increases to be soon followed by an easing trend. If they are right, perhaps January’s strong performance will be only the beginning of a sustained rally, but what happens to equities, including the Nasdaq, if the Fed isn’t convinced and they continue to elevate rates? What happens if our current historically strong labor market doesn’t weaken? What if the current level of interest rates isn’t capable of thwarting economic activity? What if? What if? What if?