In U.S. sector performance, seven of the ten S&P 500 major market groups delivered positive January returns with Materials (+11.2%), Financials (+8.1%), Technology (+7.6%) and Industrials (+7%) as the top performers.   Cyclicals predominately outpaced defensive sectors as Utilities (-3.6%) and Consumer Staples (-1.5%) succumbed to profit-taking selling.  Telecom (-2.7%) was January’s second worst laggard.  Partial, but notable credit for January’s technology gains were due to Apple’s stellar all-time-high quarterly earnings report.  Apple, an S&P 500 index member, pushed the index’s overall to-date 4Q earnings growth to over 11.5% from 2.7% growth without Apple’s results.  Similarly for Industrials, a 20% surge in Caterpillar shares contributed over one-third of the Dow Jones Industrial Average’s 415-point January rally.

Non-U.S. developed equity markets outpaced domestic markets, serving up nearly 5.4% in positive performance last month, as measured by the MSCI EAFE Index.  Emerging markets also had a solid month, with performance more than twice that of the U.S. benchmark.  After falling nearly 20% last year, the MSCI Emerging Markets Index, a proxy for this asset class, rebounded sharply in January delivering positive returns of 11.36%, marking its best January performance since 2001.   

Having noted the slower-paced nature of the U.S. economic recovery, the U.S. Federal Reserve announced on January 25^th that it will keep its key overnight lending rate at near zero percent through at least late 2014. This together with the Fed’s continuing “Operation Twist” bond swaps into longer dated debt has downwardly pressured 10-year Treasury yields to 1.79%, a four month low. Treasury Inflation Protected Securities (TIPs) gained 1.9% in January.  

Investment grade bonds (excluding municipals) rose fractionally last month, returning 0.88% as measured by the Barclays US Aggregate Bond Index.  Municipal bonds, as measured by the Barclays Municipals Index, returned 2.31% in January, its best monthly gain against Treasuries since 2009.  This performance was partially driven by a rebound in U.S. state tax collections to their pre-recession levels.  Non-investment grade corporate bonds returned 3.04% last month, according to the Barclays US Corporate High-Yield Index.  Given the backdrop of near-record low Treasury yields, January’s bond market gains were largely fueled by a diminished supply of new bonds and increased deposits into fixed-income funds.  

This information is compiled by Cetera Financial Group.  No independent analysis has been performed and the material should not be construed as investment advice.  Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context.  All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

All economic and performance information is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices.  Please consult your financial advisor for more information.

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