January Monthly Commentary

US stocks marched higher in January posting new record highs. The Dow topped 20,000 and the S&P 500 reached a record high over the month on the themes of deregulation and fiscal stimulus that have driven the market since the election. Expectations are for corporations to build on the profit gains seen in the third quarter and post a 3.2% increase in the fourth quarter. The US continued to post generally positive economic news during the month but there were a few sour notes. On the positive side wages increased 2.9% over the trailing year, manufacturing reached its highest level in two years, auto sales hit a new record in 2016, retail sales rose 0.6% in December and home prices rose over 5%. On the downside only 156,000 jobs were added in December, down from the recent pace; US new home sales sank in December and fourth quarter GDP growth disappointed rising just 1.9% and making the full year growth rate 1.6%. US stocks rose 1.88% in January bringing the trailing twelve month performance up to 21.73%.

Foreign stocks jumped to start 2017 and were the top performing asset class on improving economic news. After a strong fourth quarter Eurozone GDP rose 1.7% in 2016 slightly topping the US’s growth rate of 1.6%. Eurozone manufacturing posted its best reading since April 2011, industrial output picked up, inflation rose 1.8% in January from a year earlier and the jobless rate fell to a seven year low. ECB chief Draghi stated they would continue with their plans of buying bonds through the end of the year. China posted a 6.7% GDP growth rate for 2016 as the easy credit and state spending initiatives aided the economy. China’s manufacturing continued to expand in the fourth quarter of 2016. Emerging markets outpaced developed markets to start the year. In January international stocks surged 3.43% raising the trailing year performance to 16.71%.

Bonds rose in January as interest rates were flat. The Fed’s December meeting minutes showed that they were unsure on how the new administration’s proposals will impact the economy. Fed Chief Yellen stated the Fed would continue to look to raise the fed funds rate cautiously and gradually. International bonds fell as interest rates rose due to a pickup in global growth and increasing inflation expectations. The 10 year Treasury yield ended the month where is started at 2.45%. For the month longer term bonds outpaced shorter term bonds and munis were the top performing sector for the month. The broad bond market rose 0.20% in January and is up 1.45% over the trailing year.