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 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.

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