Monthly Market Monitor: January 2014 Recap

U.S. equities slumped last month sending the S&P 500 lower for its first monthly pullback since August. Stocks retreated from year-end record highs as concerns over Chinese growth and reduced Federal Reserve stimulus caused angst in emerging market currencies, pressuring emerging market stocks. A mixed bag of corporate profit and revenue reports during the first part of the fourth quarter earnings season also weighed on sentiment. The Dow Jones Industrial Average fell 878 points (-5.2%) in January, its largest percentage loss since May 2012 and worst point pullback since February 2009. Comparatively, the NASDAQ Composite declined the least, falling 1.7%. Overall, global equity valuations declined by approximately $1.8 trillion in January.

Smaller-capitalized stocks declined less than large-caps as the Russell 2000, a proxy for small-cap equities, fell by 2.8% in January. Mid-cap stocks, as measured by the Russell Mid Cap Index, declined 2% during the month. Growth stocks again edged out value as the Russell 1000 Growth Index lost 2.9%, while the Russell 1000 Value Index retreated 3.6%. Commodities, as measured by the S&P GSCI Index, continued a downward trend, falling 1.6% in January. Amid fears of a slowdown in China, copper prices slumped 3.9% in January, ending the month down with eight consecutive session losses, its longest losing streak since December 1998. On the other hand, gold rose 3.1% on the month. West Texas Intermediate (WTI) crude oil futures fell 0.9% last month, while frigid temperatures throughout the U.S. caused natural gas futures to spike 17% in January, the biggest one month gain since September 2012.

Eight of the ten sector groups ended negative, losing 2.5% or more. Energy (-6.3%), Consumer Discretionary (-5.9%) and Consumer Staples (-5.1%) fell the most, while Utilities (+3%) and Healthcare (+0.9%), both defensive sectors, outperformed. On an industry (sub-sector) basis, Appliances (-15%), Specialty Retail (-14.8%) and Metals & Mining (-14.1%) fell the most, while Aluminum (+8.3%), Gas Utilities (+7.4%) and Biotech (+5%) gained the most.

Overseas developed markets lost more than the U.S. as the MSCI EAFE Index declined by 4%. Emerging markets, as measured by the MSCI Emerging Markets Index, sank 6.5% in January, extending losses into a third month. China’s PMI Manufacturing Index slumped to a six-month low in January, which may pressure an already reduced Chinese GDP growth forecast lower. Growth is forecast to expand by 7.4% this year, China’s slowest growth pace since 1990.

Bonds outperformed stocks for the first time since last August as global fixed-income securities had their best January performance since 2008. Treasuries, as measured by the Barclays U.S. Government Bond Index, rallied in January, returning 1.3%. The yield on benchmark 10-year U.S. Treasury notes fell nearly 40 basis points to 2.64%, its lowest level since November. U.S. investment grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, returned 1.5% last month. The Barclays U.S. Corporate High Yield Index, a proxy for non-investment grade corporate bonds, returned 0.7%. Municipal bonds, as measured by the Barclays Municipals Index, outperformed Treasuries and corporates last month, returning nearly 2%.

This information compiled by Cetera Financial Group is believed to be from reliable sources; This This information compiled by Cetera Financial Group is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The information has been selected to objectively convey the key drivers and catalysts standing behind current market direction and sentiment.

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