By Erik Sherman
February 1, 2019

Despite trade wars and an historically long government shutdown, January was a banner month for stocks and the best in more than 30 years, the Wall Street Journal reported. That was after the worst December the markets had seen since the Great Depression.

The Dow Jones Industrial Average saw a rise of 7.2%, the best since January 1985. The S&P 500 was up 7.9%, which was the biggest start to a year since 1987. Nasdaq grew by 9.2%.

Pushing the gains were stocks of banks and smaller companies, both of which had taken a hit in December. The turnaround was helped in part by the Federal Reserve. Chairman Jerome Powell’s remarks in early January about more flexibility in interest rate increases and the body’s decision at the end of the month to leave interest rates where they had been boosted investor confidence.

“The flexibility that the Fed has telegraphed buys us a little more time to perhaps prolong this cycle,” Wasif Latif, head of global multi-asset investing at USAA Asset Management, told the Journal.

There was also perceptions of a thaw in the trade war with China and the end to the shutdown.

But there are already signs of potential rough waters ahead. Earnings forecasts have been dropping. Analysts see little profit growth, adjusted for inflation, for at least the first nine months of 2019.

There are also increased concerns about a recession within a year, both among consumers and many corporate executives.

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