Month in Review
The S&P 500 gained 4.48% in January with dividends added, its best opening month since 1997 when the index increased 6.13% and went on to return 31.01% for the year.
Current and estimated P/Es remain historically low, and dividend yields within the S&P 500 are high by comparison. Sales have been growing slowly, but in aggregate should post an all-time high for Q4 2011 according to S&P reports. Materials, the worst S&P sector for 2011, was the best performer in January (up 11.06%). 2011’s top -performing sector, Utilities, fell 3.66% in January. Small-cap issues, as represented by the S&P Small Cap 600, posted a 6.52% gain.
January posted a broad recovery in global markets, as 45 of 46 countries gained. Portugal, the sole decliner, fell 3.42%. The global turnaround from last year’s steep losses was attributed to fresh optimism that the European debt crisis, while far from abating, was starting to be managed, and that the U.S., while still sluggish, was stable and would temper lower growth outside the U.S.
In the U.S., the Federal Reserve Board vowed to keep interest rates low through at least most of 2014, and implied that its balance sheet is ready if QE3 needs to be introduced. In Europe, Greece once again appeared to be nearing a big debt deal. In Asia, China’s growth was seen as slowing, but relative to the rest of the world, remained vibrant.
Whether the market enthusiasm continues will depend on economic conditions. But clearly, the disciplined investor who remains committed to passive and index investing continues to have a leg up on the markets.