January market review

February 14, 2014

Shortly after the end of each month, our Chief Investment Strategist provides highlights of the market and our funds’ performance. Following is a summarized review of January —


  • Global financial markets declined while volatility rose in January, as emerging market currency weakness and further reduction of US Federal Reserve stimulus measures contributed to reduction in investor risk tolerance.
  • For the US equity indices, the S&P 500 return was -3.46%. The Dow Jones Industrials Average Index was the worst performing US equity index, down -5.19% for January. The Russell 2000 small cap index was down -2.77%, outperforming the S&P 500 in January.
  • The Developed International equity index, MSCI EAFE, underperformed the S&P in January, down -4.02%.
  • Emerging markets (MSCI EM), the worst performing region in January, was down -6.49%.
  • The Japanese Nikkei 225 was down -8.45% in January. This underperformance was accompanied by a rise in the Yen, which was up 3.21% for the month of January.
  • Government bond yields declined as investors exited equities, with US yields falling across all maturities as the curve flattened. In January, the 10-year Treasury yield was down 38bps to 2.65% and the 30-year Treasury yield was down 37bps to 3.60%. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices were up in January. The Barclays Aggregate Index was up 1.48% for the month. The Credit Suisse Leveraged Loans Index (bank loans) was up 0.71% for January.

Economic & Geopolitical Headlines

  • The ISM manufacturing index indicated a slightly slower expansion in January; US PMI was at 51.3 in January, down from 56.5 in December. PMI numbers show that manufacturing continues to strengthen throughout the world. A reading above 50 is considered economic expansion.
  • Janet Yellen has taken over as Chair of the Federal Reserve. She and the Fed have continued the process of “Tapering”. Tapering is the gradual reduction of the amount of assets the Fed is purchasing each month under its quantitative easing program.
  • Job creation was weaker than expected in January, with the economy adding 113,000 new jobs, an improvement over December but weaker than the 178,000 expected by economists. The unemployment rate is now at 6.6%, the lowest in five years.
  • Domestic growth, as measured by estimated GDP growth, showed that the economy grew at an annual rate of 3.2% for the fourth quarter of 2013, the 11th consecutive quarter of growth. Economists were pleased with this figure, especially considering the headwind of the federal government shutdown at the beginning of the quarter.
  • Emerging markets continue to decline in 2014. While emerging market economies are showing signs of having found a bottom, currency weakness and weak investor sentiment have weighed on EM countries. Many investors are concerned with what impact asset flows and the Federal Reserve tapering will have on emerging markets. However, EM valuations are becoming increasingly attractive and are priced at steep discounts compared to developed markets and the respective growth rates of the emerging versus developed worlds.


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