Monthly Economic Update January 2011
The year-end stock market rally continued into the new year with major stock market indexes delivering low single digit returns in January. Other risk based assets such as broad based commodities, high yield bonds, and real estate also performed well. Emerging markets took a breather, declining low single digits, precious metals stumbled out of the gate, and municipal securities continued a trend of relative weakness that began last November.
Economic data releases were somewhat mixed but leaned toward the positive end of the spectrum. Economic growth accelerated in the fourth quarter on the heels of improving consumer spending and impressive growth in retail sales. Manufacturing continued to move forward, but passed the baton to the service side of the economy in the home stretch. Unemployment and consumer confidence both improved, but each remain at unhealthy levels. Key domestic concerns were state and local finances and a renewed deterioration in housing, which showed price declines in every major market.
Sovereign debt concerns remained ever present, but largely ignored, while inflationary pressures in developing economies gained heightened attention.
Civil unrest in Egypt punctuated the month with a reminder to investors that emerging markets still pose unique risks and challenges. As for Egypt specifically, at a mere 0.3% of global GDP, the key focus is one of contagion rather than country specific risk to worldwide GDP.
Januaryâ€™s Economic Releases
The S&P 500 index gained 2.4% during the month of January. Developed international equity markets, as defined by the MSCI EAFE Developed Markets index, were also up 2.4% for the month. Emerging markets started the year on a down note as the MSCI Emerging Markets index lost 2.7% for the month. Concern over rising inflationary pressures in developing economies was a recurring theme throughout January. Toward month-end, civil unrest in Egypt added further downward pressure on emerging market equities.
In the fixed income market, the Barclays US Aggregate index was up 0.1% for the month and the 10-year U.S. Treasury bond ended with a yield of 3.38%, up slightly for the month. Major fixed income subcomponents performed similarly with the exception of high yield, which performed somewhat better, and municipals, which continued a recent trend of relative underperformance.
Broad based commodities and real estate posted gains of 1.0% and 3.8% respectively.
This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgagebacked securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.