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Monthly Market Update - January 2014

February 18, 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
     
     
     
     

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