January 2012

Sometimes the markets seem to turn a page at the start of a new year. That was the case this year, as the uneasiness of 2011 seemed to give way to cautious optimism so far in 2012. The sovereign debt crisis in Europe continues, but the negotiations over resolving, for example, Greek debt have become laborious, rather than urgent. Market participants seem to feel that holders of Greek debt will suffer substantial losses, but the problem is unlikely to cause the European banking system to unravel. Meanwhile, economic conditions have defied the protestations of campaigning politicians and improved somewhat. US corporate earnings continue to grow, and while the figures so far this quarter haven’t, for the most part, been stellar, the general sentiment is that they have been good enough. As a result, the US stock market advanced sharply during the first three weeks of the new year, and then calmly maintained those gains for the rest of the month. For all of January, the S&P 500 returned +4.48%. The Midcap 400 Index returned +6.61% for the month, and the Small Cap 600 returned +6.58%. Mid-cap growth outperformed mid-cap value, but value was stronger than growth in the large- and small-capitalization ranges. [Index returns: Standard and Poors]

Once again, global equities followed roughly the same pattern as the US market. The MSCI Barra EAFE international equity index returned +3.90% in local currencies. As the news from Europe became calmer, so did currency markets, and the US dollar lost a bit of ground as investors eased away from its perceived safety. The dollar weakened to $1.309 against the euro, from $1.2973 at the end of December. The dollar also slipped against the pound Sterling. The British currency ended January at $1.5766, compared to $1.5537 a month earlier. The dollar weakened to 76.35 yen, from 76.98 on 12/31/11. The currency effect was positive for US investors, and EAFE returned +5.33% in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release and Yahoo! Finance]

In spite of the strong equity markets, investors still sought safety in US Treasuries, and an announcement by the Federal Reserve that it intends to keep rates very low into 2014 helped drive Treasury yields lower. The yield on the two-year US Treasury note ended January at 0.22%, after ending December at 0.25%. The yield on the ten-year ended the month at 1.83%, down from 1.89% a month earlier. The Barclays Capital US Aggregate Bond index returned +0.88% in January. [Index returns: Barclays Capital. Treasury yields: US Treasury].

Previous Years Market Reviews

Market Reviews for 2011
Market Reviews for 2010
Market Reviews for 2009
Market Reviews for 2008
Market Reviews for 2007
Market Reviews for 2006
Market Reviews for 2005

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