Monthly Economic Update January 2013
A New Yearâ€™s Day congressional deal to side-step much of the fiscal cliff led to a relief rally in early January. The upward trajectory was further fueled by reasonable economic reports, easing global tensions, and favorable corporate earnings releases. By month-end, creative legislation to delay government debt ceiling drama and a resolutely dovish Federal Reserve were sufficient to propel U.S. stocks to within striking distance of all-time highs.
The month was not devoid of challenges and near-term policy issues remain. Fourth quarter U.S. GDP surprisingly contracted by an annualized rate of 0.1%. Consumer confidence also plunged in January as worker pay was hit by higher payroll taxes. As for the government, delayed sequestration cuts look increasingly likely to hit on March 1 and the debt ceiling debate will resurface again this summer.
In light of favorable policy developments, universally bullish Wall Street investment strategists, and expectations of paltry fixed income returns, investors have been reassessing their portfolio allocations and willingness to own risky assets. Indeed, by mid-January, equity oriented mutual funds and ETFs had registered the strongest two-week period of inflows since April of 2000.
Unfortunately, retail fund flows are anything but a smart-money indicator, and April 2000 was the first full month following the peak of the internet bubble! In short, breaking a 22 month string of equity fund outflows is certainly news; itâ€™s just that the news may not be good.
Januaryâ€™s Economic Releases
The S&P 500 index gained 5.2% during the month of January, its best annual start in nearly two decades. 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 with less significant gains, rising 1.4% for the month. For dollar-based investors, modest dollar strength weighed slightly on international developed market returns.
In the fixed income market, the Barclays U.S. Aggregate index fell 0.7% for the month as a result of higher interest rates. The 10-year U.S. Treasury note ended the month with a yield of 2.02%, up 24 basis points in January and its first time over 2% since last April.
Broad commodities and publicly traded domestic REITs posted gains of 2.4% and 4.0%, 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.