Market Week: January 27, 2014

The Markets

A double whammy helped trigger a selloff in equities last week. Weaker-than-expected manufacturing data from China helped fuel concerns about the global impact of potential additional Fed tightening next week and a stronger U.S. dollar. Some lackluster earnings reports didn’t help, though profit-taking in the wake of last year’s strong rally also could have been a factor. After declines in several emerging-market currencies, the Dow and S&P 500 dropped below their 50-day moving averages; the Dow lost 318 points on Friday alone. The Nasdaq, the small caps of the Russell 2000, and the Global Dow joined them in negative territory for the year. The global jitters had investors seeking the relative safety of Treasury bonds as the benchmark 10-year yield fell for the fourth straight week.

Market/Index 2013 Close Prior Week As of 1/24 Weekly Change YTD Change
DJIA 16576.66 16458.56 15879.11 -3.52% -4.21%
Nasdaq 4176.59 4197.58 4128.17 -1.65% -1.16%
S&P 500 1848.36 1838.70 1790.29 -2.63% -3.14%
Russell 2000 1163.64 1168.43 1144.13 -2.08% -1.68%
Global Dow 2484.10 2487.32 2422.47 -2.61% -2.48%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.84% 2.75% -9 bps -29 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Global markets became concerned about the potential implications of a tightening in China’s monetary policies after a survey showed that the manufacturing sector there contracted in January for the first time in six months. The Markit/HSBC Purchasing Managers’ Index dropped to 49.6 from 50.5 (anything below 50 represents contraction).
  • After three months of declines, sales of existing homes rose 1% in December, according to the National Association of RealtorsĀ®. Even better, the NAR said sales for all of 2013 were higher than they’ve been in any year since 2006, and were up 9.1% from 2012’s annual figure.
  • The Argentinian peso joined several other emerging-market currencies in declining last week. The Argentine government devalued the country’s currency in an attempt to stimulate growth, but other currencies, including the Turkish lira and the Indian rupee, have suffered recently because of fears about the global impact of future tighter monetary policies.
  • The International Monetary Fund raised its forecast for global economic growth this year by 0.1% to an annual rate of 3.7%, saying that projected U.S. growth of 2.8% in 2014 will be extremely important to that forecast.

Eye on the Week Ahead

The whole world’s watching: Wednesday’s Fed announcement–Ben Bernanke’s last as chairman–could include further cuts in the Fed’s bond purchases and have repercussions in global markets. Also on tap are more earnings reports, the first look at Q4 economic growth, and data on the U.S. housing market, manufacturing, and personal spending.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/ Market Data (oil spot price, WTI Cushing, OK); (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.