News Column

Markets Search for Direction

January 22, 2014

From this dispersion of returns, it is difficult to extrapolate what the implications might be for the overall market. Certainly, with energy, materials, industrials and consumer discretionary names all lower, and tech essentially flat, it is a tough case to make at this juncture that the economic acceleration story has gained much traction. At the same time, with consumer staples lower, along with flat utilities, neither does the defensive point of view seem to be gaining the upper hand. Of course, earnings season, and the order in which various names report their results influences sector returns this early in the year. The same holds true for policy changes and their effective dates, such as the Affordable Care Act. But the inconclusive overall returns so far seem to reflect the ambiguity of the recent economic data, especially the surprisingly weak December jobs report. Mixed results outside the U.S., too Overseas markets also betray a sense of ambiguity, as stocks in Europe are higher by 0.6 percent, as measured by the MSCI Europe index in dollar terms, while Japan is essentially flat. Emerging markets remain under the most pressure, down 3.2 percent. The Investment Company Institute reported that after consistently positive net inflows for equity funds throughout 2013, investors withdrew $0.6 billion in the first week of January. Interestingly, world equity funds continued to enjoy robust positive flows, which were more than offset by $3.4 billion of outflows from domestic equity funds. It is too early to conclude that investors have lowered their enthusiasm for U.S. equities, however. The turn of the year is a popular time for portfolio rebalancing, and after the robust returns last year, particularly in domestic stocks, some outflows are to be expected. One week's worth of data does not necessarily indicate a change in sentiment. Whether the outflows persist will tell the story. Positive returns so far from the bond market this year suggest an early preference for the perceived relative safety of bonds in the face of such ambiguity, as well as their relative attractiveness after the rise in yield to close out the year. ICI data shows that after seven straight months of outflows to end last year, investors added a net $3 billion to bond funds in the first week of this year. Partly as a result, the Barclays U.S. Aggregate Bond index is higher by 0.9 percent year-to-date. At the same time, however, bond investors don't appear overly concerned about the economy, as the Barclays High Yield index is higher by 1.0 percent, with the lowest quality grade bonds delivering the highest returns. The prevailing ambiguity will result in a firm focus on the data for signs of direction. Fourth quarter earnings season so far looks to be about as expected. According to Bloomberg , 20 percent of the S&P 500 has reported so far, with two-thirds of companies beating on the top and bottom lines, in line with historical experience. The pace of reports will accelerate this week, with roughly one-quarter of companies in the index scheduled to report. On the economic front, this week's calendar is fairly light, but does include December reports on existing home sales and leading indicators. The following week's calendar, on the contrary, is quite full, headlined by the Fed meeting, but also including reports on inflation, new home sales, durable goods, fourth quarter GDP and consumer confidence. Looking a little further ahead, the January employment report, scheduled for release on February 4 , will go a long way toward clarifying conditions in the labor market, and whether the December report was, indeed, an aberration. Important Disclosures: The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance. The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill . The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index composed of securities from the Barclays Capital Government/Corporate Bond Index, Mortgage-Backed Securities Index and the Asset-Backed Securities Index. The Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. It is not possible to invest in an index. Investment products are not federally or FDIC -insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC . 2014 Ameriprise Financial, Inc. All rights reserved. .

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Source: M2 PressWIRE

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