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Feb. 1, 2019

The S&P 500 finished January posting its best start to the year in about 30 years as strong earnings results from major names buoyed stock prices. U.S. stocks rallied to close the first month of 2019 higher, with the Dow Jones Industrial Average reclaiming close to the 25,000 level for the first time in over a month, after scoring a boost from solid corporate results and a seemingly accommodative Federal Reserve.

The Fed held rates unchanged at a range of 2.25% to 2.50%, as widely expected, but dropped its longstanding reference to "further gradual" rate hikes. Instead, it emphasized that it will be "patient as it determines what future adjustments to the target range for the federal-funds rate may be appropriate to support these outcomes." The central bank also said it would adjust the rate of its balance-sheet runoff, and may even consider ending it.

The rate decision as well as the verbiage was widely anticipated by the financial markets, partly due to a belief among some investors that the Fed cannot be too hawkish in the wake of the stock market selloff in December amid signs of slowing global economy.

More important than the Fed's promise to be 'patient' about raising rates is the Fed's assertion that it will not hesitate to make changes to balance sheet normalization. The balance sheet is a far more powerful tool, and one that has a bigger impact on the stock market. Consistent with recent dovish-leaning rhetoric from both Chair Powell and several FOMC officials, the Federal Reserve has adopted an increasingly cautious approach in response to heightened global growth uncertainties, financial market volatility, and the fragile trading relationship between the U.S. and China.

The private sector added 213,000 jobs in January according to payroll-processing firm ADP. That is above the consensus estimate of 178,000 new jobs, according to FactSet. The ADP report isn't as closely watched as the Labor Department's jobs report, and it often varies significantly from the official government number on Friday. Still, economists use those figures to form their predictions for the official report.

For the year the Dow, S&P 500 and NASDAQ are all positive at 7.17, 7.87 and 9.74 percent, respectively, while the 10-year Treasury is yielding 2.70 percent.