January in the Markets

January came to a close with a strong month in the US stock market on some positive economic news.

Markets

The S&P 500 closed out the month up 5.18% closing at 1498.11.  In January the S&P 500 broke 1,500 for the first time in five years as the markets continue a long recovery from their March 2009 lows. In fact, the Wilshire 5000, typically considered a measure of the entire US stock market, hit an all time high on January 26th, breaking the previous level set on October 9th, 2007.

Market returns through 1/31/13 are as follows:

• Through 1/28/13, approximately 64% of reporting companies reported earnings exceeding Wall Street expectations, giving momentum to market gains.

• Over 60% of reporting companies also exceeded revenue expectations, meaning that top-line sales growth has improved and earnings are not just the result of improving margins.

• After waiting out the “fiscal cliff” and seeing strong gains over the past two months, retail investors poured money into stock mutual funds in January. The first full week of January showed a near-record $18.3 billion of inflows into stock mutual funds, making it the fourth highest week on record. The pattern has continued (although softened) throughout the month with subsequent weeks showing consistent positive flows for US and international funds for the first time in years. Of course, these figures are just a fraction of the billions of dollars investors have pulled out of the markets over the past five years.

Economy

• Initial figures for fourth quarter 2012 GDP growth were released in January, showing a -0.1% decline in US GDP.  Dramatic reversals in government spending (primarily cuts at the Pentagon). and inventory build-ups resulted in a small net decline of US GDP.  The defense spending cuts were largely the result of uncertainty surrounding the “fiscal cliff” and possible spending sequestration.  From the BEA, here is the decline in quarterly defense spending:

• However, the private sector grew in its now-typical slow-and-steady fashion.  Below see the comparison between government contribution to GDP and private contribution:

• US households have taken significant steps to repair over-leveraged balance sheets since the recession. The chart below shows that household debt service has reached low levels not seen since the 1980s.

 The National Association of Realtors reported that year-over-year pending home sales in December 2012 increased by 6.9% from their 2011 levels.

• Locally, Denver home prices grew 7.8% from November 2011 to November 2012 based on recently released data.

• More positive economic news coming out of Colorado is that the Colorado Automobile Dealers Association reported full-year sales growth of nearly 22% for light truck and auto sales for 2012.