Stocks staged their strongest January advance in 15 years despite absorbing negative news on the month’s last day of trading. Although the broad averages were little changed Tuesday, the S&P 500 has now rallied more than 200 points since its low point last October as investors have gained confidence in the domestic economy’s halting but nonetheless upward path.
Broad market averages had been well ahead early in the session after members of the European Union agreed to move closer to fiscal union and also approved a permanent bailout fund for the Eurozone. In addition, negotiations between Greece and its private creditors over a debt restructuring appeared to be moving toward an agreement. However, investors turned cautious after the Conference Board said its index of consumer confidence declined to 61.1 in January from a revised 64.8 in December. The new level was well below the 68.0 reading generally expected by economists. Adding to concerns was news that U.S. home prices fell again in November, according to the Standard & Poor’s Case-Shiller home-price indexes.
Despite a mixed session at month’s end (the Dow Jones Industrials declined 20.81, or 0.16%; the S&P 500 fell 0.61, or 0.05%; and the Nasdaq advanced 1.90, or 0.07%. equities finished January with robust gains.
|
1/31/12 Close |
12/30/11 Close |
Change |
Gain/Loss |
|
| DJIA |
12,632.90 |
12,217.56 |
+415.34 |
+3.40% |
| NASDAQ |
2,813.84 |
2,605.15 |
+208.69 |
+8.01% |
| S&P 500 |
1,312.40 |
1,257.60 |
+54.80 |
+4.36% |
Shareholders were upbeat last week when the Federal Reserve Board said it planned to keep short-term interest rates at exceptionally low levels “at least through late 2014” and also signaled that the central bank may restart a bond-buying program meant to push down long-term rates. The Fed previously had said short-term rates would stay near zero at least until mid-2013. The Fed also adopted a specific inflation target – a 2.0% annual rate in the PCE Price Index, which is similar to the CPI, but adjusts for changing patterns of consumption – and reaffirmed its dual mandate of controlling prices while also achieving maximum sustainable employment. Fed officials have indicated that they believe the appropriate unemployment rate target is currently between 5.2% and 6.0% – higher than it was before the financial crisis.
The behavior of equities in January is closely monitored by market watchers seeking indications of how stocks will perform for the full year. However, a first-month rally does not always hold the promise of later gains. Last year, for example, the S&P 500 advanced more than 2% in January but finished 2011 essentially unchanged.
While a strong start to the year is certainly welcome, investors must remain vigilant as 2012 unfolds since many of the issues that generated volatility last year remain unresolved. As always, a carefully considered long-term strategy is the key. Please feel free to contact us with questions or concerns about your financial plan.
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.
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Stocks continue gains with Dow closing above 13,000
Monday, March 5th, 2012Stocks continued their gains in February with the Dow Jones Industrial Average closing above the psychologically important level of 13,000 on February 28th – the first time since May 20, 2008. The Dow slipped below the milestone on Leap Day, but still increased 2.53% for the month to close at 12,952.10. Broader averages followed suit, with the tech-heavy Nasdaq hitting 3,000 for the first time since December 2000 and increasing 5.44% during the month. The S&P 500 also advanced 4.06%.
2/29/2012 Close
1/31/2012 Close
Change
Gain
12,952.10
12,632.91
319.19
2.53%
2,966.89
2,813.84
153.05
5.44%
1,365.68
1,312.41
53.27
4.06%
Since October 2011, investor confidence has risen alongside strengthening corporate profits and improvements in leading economic indicators — including jobless claims and the Institute for Supply Management (ISM) index. According to the Conference Board its consumer confidence index rose to 70.8 in February, well above the January reading of 61.5.
Contrary to positive sentiment, orders for durable goods in January declined by almost 4% to $206 billion, according to the Commerce Department — the biggest drop since January 2009. In addition, the Standard & Poor’s Case-Shiller Home Price Index cast new doubt on the housing market. The national composite for housing prices declined 3.8% during the fourth quarter of 2011 and 4.0% versus the fourth quarter of 2010.
On the European front, the 130 billion euro ($174 billion) second bailout package for Greece was finally approved. While the outcome for Greece and whether or not it will eventually default remains uncertain, the package is perceived to have more benefit than risk and will require the country to cut 3.2 billion euro from its budget. Today, the European Central Bank launched its second three-year long-term-refinancing operation to further ease balance sheet pressure. Banks are expected to take another 530 billion euros ($713 billion) in addition to the 500 billion euros borrowed in December.
With the Dow hitting 13,000 and the likes of Apple trading at a record high, investors want to know if stocks can move higher. While no one knows, historical comparisons are sometimes informative. Let’s look at the S&P 500 in 2011. The average started the year with similar momentum and peaked in April at 1,337 (more than a 6% increase). By the end of 2011, the S&P was down 1.1% after a fairly volatile late summer run. That said, stocks are trading at a 14% discount to their average price-earnings ratio over the past five decades, according to Bloomberg calculations, and equities certainly look appealing. Against this, of course, are fears about possible contagion from ongoing problems in the Eurozone, the U.S. budget deficit, rising energy prices and the ripple effects of a China slowdown. As always, only time will tell.
While a development like the Dow reaching the 13,000-level is welcome, investors should remain watchful of the many issues that generated volatility in 2011 and the newly mounting concerns like China that may tip the scale further. A carefully considered long-term strategy is the key. If you have any questions or concerns about your portfolio holdings, or your overall financial plan, please call us.
Tags: 2012, DOW, Market Outlook, S&P 500, trends
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