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It was a tough close for the equity markets for January. The S&P 500 closed down 1.3% today to finish down 3.1% for January. Corporate earnings were a focal point as several important companies either missed their earnings targets or issued weaker guidance than expected. Often cited as a contributing factor to the negative earnings outlook was either a stronger U.S. dollar or the large decline in crude oil prices.
The S&P began 2014 in similar fashion with a decline in January last year of 3.46%. This time feels different to us though as there appears to be an increase in macroeconomic uncertainty and a sense that investors are paying closer attention to this increased risk.
The U.S. has largely been isolated from the slowdown in global growth. Leading economic indicators have pointed to stronger growth for 2015, but a weak durable goods report early in the week put some pressure on the markets. A report on gross domestic product today was in line with 2.6% annualized growth. This is down from the 3rd quarter’s strong 5% pace and not indicative of the escape velocity needed for our economy.
The S&P 500 finished below 2,000 for January as technical weakness aligned with economic uncertainty. This is a level that has shown buying strength many times over the last 2 months, so it will be important to gauge investor sentiment going into February. We believe that individual buying opportunities remain and look for increased volatility to increase the number of attractive targets.