Fundamentals

US Equities Close Month In Red Despite Strong Economic Growth

U.S. Session Key Developments

•    US Economy Grows At Fastest Pace In Six Years
•    Dollar Index At Highest Level In Five Months
•    Technology Stocks Drag Down Broader Market

Stocks ended the month of January in the red as data that showed that US Gross Domestic Product grew at a 5.7 percent rate was unable to overcome disappointing results from technology companies.  The 3.7 percent January decline in the broad-base S&P 500 Index is the first monthly decline since October and does not bode well for equities for the remainder of the year.  Since 1950 there have only been 5 years in which the index decreased in January yet finished the year in positive territory.  A notable exception to the “January barometer” is last year, when the index dropped 8.6 percent in January yet managed to finish the year up 23 percent.  Markets had started today’s session in positive territory, trading a full percent higher, after the Commerce Department reported that the economy grew at the fastest pace in six years.  The University of Michigan Confidence Survey also surprised to the upside as the actual figure of 74.4 exceeded analysts’ average estimate of 73.0.  However, stocks were unable to maintain their momentum as lower sales forecasts from some large-cap tech stocks pushed markets into negative territory.  The better than expected GDP report renewed speculation that interest rates would be hiked sooner than previously expected, which sent the dollar index to its highest level in five months.  Dollar strength weighed on commodities, which finished the day modestly lower.  Crude was down 1.28% to 72.70 and gold finished the day down 0.17% to 1,081.80.  Looking ahead to next week, investors will be anxiously awaiting Friday’s Non-Farm Payrolls figure, which has traditionally been the biggest market mover of the month.  We will see on Friday if economic growth can translate into new job creation, which the Obama administration has made its top priority.

DJIA 30                      10067.33                     -53.13                          -0.52%
The Dow Jones Industrial Average gave up early gains in the last two hours of trading to finish in the red for the third day this week.  The index was dragged down by tech stocks as well as Boeing Co., which closed down 3.13 percent after another manufacturer, Honeywell, set a first-quarter profit target that fell short of analysts’ expectations.

S&P 500                      1073.87                        -10.66                          -0.98%
The broad-base S&P 500 finished January at its lowest level in three months as all sectors finished today’s session lower.  Besides technology, the worst two performing sectors were Basic Materials and Energy.  The two sectors were down 2.01 percent and 1.27 percent as commodities were weaker this week amid dollar strength.  Oil in particular, had its worst monthly decline since December 2008 this month.

NASDAQ                     2147.35                        -31.65                           -1.45%
The tech-heavy Nasdaq Composite was the worst performer of the three major U.S. Indices as tech stocks dragged the broader market lower.  Investors sold off shares of technology leaders such as Apple Inc, Microsoft Corp and International Business Machines.  Their stock prices were lower by 3.63 percent, 3.36 percent, and 1.10 percent respectively.  The drop in prices was spurred by Microsoft announcing that its enterprise businesses have not yet recovered from the worst recession since World War II.  Still, the company posted a second-quarter net income that beat analysts’ estimates by 15 cents off of stronger than anticipated sales of its newly released Windows 7 operating system.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com