Monthly Economic Update January 2012
The year-end stock market rally continued into the new year with major stock market indexes delivering mid single digit returns. Small capitalization stocks and emerging markets were the best performers, rising 7.1% and 11.3%, respectively. It was the stock marketâ€™s best annual start since January of 1997. Other risk based assets such high yield bonds and real estate investment trusts also performed well.
Domestic economic growth accelerated in the fourth quarter, but results failed to meet expectations and the quality of the growth was poor. Consumer spending rose by a tepid 2.0%, government spending was a drag for the fifth quarter in a row, and inventory restocking accounted for 70% of total growth. The labor market improved with drops in both the unemployment rate and jobless claims. Payroll growth was also good. Inflationary pressure continued to abate, which provides cover to an aggressive Federal Reserve. Lastly, housing prices fell, again, to a new post-crisis low.
The star of the show in January, and architect of the aforementioned capital market gains, was the European Central Bank. The ECBâ€™s late 2011 offering of three year, low interest rate loans to European banks acted to stabilize the financial system and put a bid under troubled European sovereign debt. Italian and Spanish yields dropped materially and both countries pulled off surprisingly strong debt auctions. Europe is not out of the woods, however. Greek debt restructuring, a major theme throughout the month, is still unresolved and time is growing short. S&Pâ€™s downgrade of nine European countries is still playing out and financial pressure in Portugal suggests it is the next epicenter of stress.
Januaryâ€™s Economic Releases
The S&P 500 index gained 4.5% during the month of January. Developed international equity markets, as defined by the MSCI EAFE Developed Markets index, were up 5.3% for the month. Emerging markets started the year on a strong note as the MSCI Emerging Markets index gained 11.3% for the month. Currency strength, particularly in developing economies, enhanced returns for dollar based investors.
In the fixed income market, the Barclays U.S. Aggregate index was up 0.9% for the month and the 10-year U.S. Treasury bond ended with a yield of 1.87%, little changed for the month. High yield, international, and municipal bonds showing relative strength while nominal U.S. Treasuries were the laggards of the group.
Broad commodities and publicly traded domestic REITs posted gains of 2.5% and 6.7% 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.