Happy New Year indeed, as the market moved up 180 points on the first day of trading and continued to move higher nearly every day during the month. Last month we pointed out January is historically the best month of the year for equities and this January, while only the 3rd up month for the S&P 500 in the last 9, was the best January in 15 years. The S&P 500 & the NASDAQ Composite both closed higher each week this month and the Dow Jones Industrial Average closed higher at the end of the 3 of the 4 weeks. At the end of the month the S&P 500 had gained 4.4%. The standout performance was from the beleaguered financial sector which came in with a monthly gain of 8.1%. The market was higher at the end of the first 5 trading days which history tells us makes the chance of an up year 85%.
When the calendar turned to the new year it was as if money managers flipped a switch and were no longer that concerned with events in Europe. Almost overnight traders decided the European financial crisis was manageable and began instead to focus on U.S. economic activity and corporate earnings. We began the month with better than expected manufacturing, showing strong new orders and low inventories. A report on December employment showed a better than expected 325,000 private sector jobs were created and the unemployment rate dropped to 8.5%, the 4th straight month of declines, and to the lowest level in 2 1/2 years. In addition, first time claims for unemployment continued to trend lower with a report on the 19th showing the biggest one week drop in new claims in 6 years. Corporate earnings were generally better than expected with the standout performer being Apple, reporting record revenue and record earnings and vaulting the company to the position of the largest company in the world. Near the end of the month the Federal Reserve announced they will keep rates low until at least late 2014, which is not great news for fixed income investors. The last major report of the month was 4th quarter GDP which showed the economy expanded in the most recent quarter at a 2.8% annual rate, the best in 18 months but slightly below expectations. Unfortunately, two thirds of the growth last quarter was inventory rebuilding, while business spending on capital goods was at a 2 year low. Since inventory rebuilding is temporary, this report suggests first quarter 2012 GDP could be at a slower pace.
The market has not historically been in love with February. Over the past 25 years the month has, on average, produced very modest gains that rank it 9th amongst all months for performance. Perhaps traders spend the month digesting gains from January. Regardless, we have taken a slightly more cautionary stance going into the month. We eliminated the last of our rising rate ETF and either reduced our 2x S&P ETF (SSO) by half or swapped it into 1x S&P ETF (SPY). We have also been selling more covered call options in those accounts where it is appropriate, as this defensive income oriented strategy seems to fit the current environment. We have also been concentrating more on income, both fixed income and dividend paying stocks. A big move down in stock prices does not seem to fit with the current signs of economic expansion and relatively low stock valuations, so we are not bearish, just cautious for the short term. The big unknown continues to be how deep and how long the recession in the European Union will be.
If you know someone who would be interested in learning more about Greenberg Financial Group, or who is retired or thinking about retiring, or would simply like us to review their current portfolio, we continue to offer our weekly retirement income workshops every Thursday @ 3 PM at Sam Hughes Place at 6th and Campbell. There is no need for a reservation.
As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:30 AM to 10:00 AM on KNST AM 790 and 97.1 FM. In addition, we encourage you to take advantage of free internet access to your account(s) by going to our website at www.greenbergfinancial.com and registering for this free service. Please feel free to call us at (520) 544-4909.