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Monthly Market Update - January 2014

Summary
January was not the start to the New Year some had hoped for.  Subpar job growth and distress in emerging markets led to losses in the S&P 500 and emerging markets of -3.5% and -6.5%, respectively.  Tightening monetary policy in emerging markets was of prime focus and a large contributor to the market-wide decline. On a more positive note, U.S. intermediate-term, inflation-protected, and foreign bonds produced favorable returns of 0.9%, 2.0%, and 1.7%, respectively. 
     
Economy
•    Fourth-quarter U.S. real GDP came in strong at 3.2% despite the near three-week federal government shutdown at the beginning of the quarter. Stronger consumption and exports were large contributors to the favorable growth. 
•    The Federal Reserve continued to taper its bond purchases (quantitative easing) in response to stronger economic growth prospects.
•    Existing home sales rose 1.0% in December. The increase was influenced by strong single-family home sales, which were up 1.9%. At the same time, the unseasonably cold weather caused new home sales to drop 7%.
•    Consumer confidence rose significantly in January to 80.7, edging toward its high for the past year of 82.1.
•    Job data disappointed investors.  Employers added 113,000 jobs in January, bringing the unemployment rate down to 6.6% from 6.7%.  However, this fell short of consensus forecasts which projected adding 185,000 jobs.
     
 U.S. Equity
•    The S&P 500 Index fell 3.5% in January.  All sectors experienced negative returns except for utilities and health care. U.S. small-cap stocks (Russell 2000 Index) incurred losses of 2.8% in January, but continued to outperform large-cap stocks.
•    Approximately 69% of companies in the S&P 500 reported fourth-quarter earnings by month-end. About 72% of those reported were above mean estimates, with the technology sector having the most companies that beat estimates.
     
International Equity
•    Developed international stock markets declined similar to U.S. stocks in January, dropping 4.0%. Most countries had negative returns with the exception of Italy which managed a slightly positive 0.5% return.
•    Emerging markets were hit hardest, declining 6.5%.  Emerging economies are still projected to grow more than the developed world, but a strengthening U.S. dollar has put pressure on some emerging market currencies, and this has affected foreign investment. Brazil dragged on emerging markets the most, falling 10.6% in January.
     
Fixed Income
•    The tapering of the Fed’s bond purchasing program continued in January with another $10 billion decrease, bringing monthly bond purchases to $65 billion.  Although the Fed continued to taper, the 10-year Treasury bond yield fell 43 basis points to 2.61%.
•    Fixed income sectors posted positive returns for the month, helped by the decline in the 10-year Treasury yield. Particularly strong areas of the fixed income markets in January were inflation-protected bonds (+2.0%) and corporate bonds (+1.8%).
     
Alternatives
•    Commodities, in aggregate, produced a slightly positive return of 0.3% (DJ UBS Commodity Index). Industrial metals dropped 4.9%, which was more than offset by positive returns from the precious metals, livestock, and energy sectors.
•    While most equities fell sharply, the S&P Global REIT Index gained 1.7%.  This was mostly driven by the decline in interest rates.
     
Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar, JP Morgan, Standard and Poor's, Wells Fargo, Yahoo! Finance
     
Market Returns Chart - One Month as of 1/31/2014
     
Market Returns Chart - 3 Months as of 1/31/2014
     
Market Returns Chart - One Year as of 1/31/2014
     
     
     
     
Posted in: Market Commentary
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