January Market Review
Shortly after the end of each month, our Chief Investment Strategist David Klassen provides a review of the market and our funds’ performance. Following is a summary of January —
• January proved to be a difficult start to 2016 as global equity markets posted sharp losses.
• US equities were down, the S&P 500 which tracks large cap stocks, began the year down 4.96%. The Russell 2000 Index, which tracks domestic small cap stocks, was down 8.79% in January.
• The international developed equity index (MSCI EAFE) was down 7.23% in January. Emerging markets index (MSCI EM) was down 6.49% in January.
• The Japanese Index (Nikkei 225) began the year down 7.96% for January.
• In January, bond yields decreased. The 30-year bond yield decreased 27bps to 2.74%, the 10-year decreased 35bps to 1.92%, and the 5-year decreased by 43bps to 1.33%. Bond yields move opposite prices, so treasury prices increased. The Federal Reserve left the overnight lending rate unchanged.
• Corporate bond prices increased in January, with the Barclays Aggregate Index up 1.38% in January. However, the Credit Suisse Leveraged Loans Index (bank loans) began the year down 0.73% for January.
ECONOMIC & GEOPOLITICAL HEADLINES
• The U.S. economy, measured by real gross domestic product (GDP), increased at an annual rate of 0.7% in the fourth quarter of 2015, according to “advanced” estimates released by the Bureau of Economic Analysis. This rate trails the second and third quarter GDP growth rates of 3.9% and 2.0%, respectively. Overall real GDP growth for 2015 is estimated at 2.4%.
• The Federal Reserve met in January and left interest rate unchanged. Federal Reserve Chair Janet Yellen commented that economic growth was slower than expected at the end of 2015 which the market took as a sign that the Federal Open Market Committee (FOMC) will slow the pace of interest rate increases going forward. Interest rates were increased by 25 basis points in December.
• Economic activity during the month of January in the manufacturing sector showed that the economy has contracted for the third consecutive month. A reading of 48.2 registered in January, an increase of .2 percentage points from the adjusted December reading of 48.0, according to the Institute for Supply Management. A reading above 50 is considered economic expansion and below 50 is considered contraction.
• The U.S. labor market grew more slowly in January. Employers added 151,000 jobs, falling short of the recent average of 200,000 jobs per month. The unemployment rate decreased slightly to 4.9 percent in January, which is the lowest level since February 2008. November and December employment numbers were revised down by a combined 2,000 jobs.