January 2010 – Market Commentary

• US and International stocks were unable to maintain the gains they posted in November and December despite some positive earnings reports and economic data.  The month started off strong with the Dow gaining 1.5% on the first day of trading, but the final week of January pushed the S&P 500 to a loss of -3.6% for the month of January.

Economic News:
• US and International economic data still offered a mixed picture to investors.  In the US, Consumer confidence, durable goods orders, and manufacturing data showed some signs of strength.  The final week brought GDP growth of 5.7% in the fourth quarter.  Yet, housing remained weak as mortgage applications declined, initial jobless claims spiked in the last week of the year as unemployment remained at 10%.  2009 also so a 33% increase in personal bankruptcies in the US.

• International manufacturing was up in the UK, China, Germany, and the other Euro countries.   China’s economy grew by 8.9% in 2009, ahead of the 8% target established at the beginning of the year, and the China central bank announced  that they would be raising bank reserve requirements to slow growth.  However, Germany’s economy continued to show weakness, shrinking by over 5% in 2009, showing that not all nations are on the right track.

Regulatory News:
• The Obama administration announced that they would be instituting a tax on financial companies that received government aid in 2008 and 2009, and that the revenue would be used to help create liquidity for small loans.

• The US Treasury announced their largest auction of TIPS securities, to  meet increasing demands for inflation protected securities.

• Despite a protracted debate and a lot of criticism of the Fed’s role in the real estate bubble, Fed Chairman Ben Bernanke was affirmed for another term.

Corporate News:
• Earnings season started with Alcoa reporting a $277 million loss on slowing demand from construction and aerospace firms.

• Many companies had positive news:  Microsoft profit grew 65%; McDonalds profit was up 23%; Apple’s profit increased on continued strong demand for their products; and Goldman Sachs ended the year by adding $4.9 billion in profit, to bring the year to date profit to a record $13.4 billion.

• However, many companies are still down:  GE profits fell 19% in the fourth quarter; Caterpillar’s earnings were down 65% on lower orders; Citigroup posted a loss of $7.6 billion; and Morgan Stanley had it’s first loss since going public in 1986.

Index Performance – January:
US Large Cap Stock (S&P 500) -3.60%
International Stock (FTSE AW ex US) -4.28%
US Broad Bonds (Barcap Aggregate) +1.53%
US Government Bond (Barclay’s Govt) +1.45%
Cash (ML 3 Mnth T-Bill) +0.01%


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