Market Commentary – January 2012                                    PRINTABLE VERSION

The Dow Jones Industrial Average claimed its fourth straight monthly advance and the S&P500 Index began the year with its best start since 1997. Improving economic data and investor sentiment, low volatility and expectations, along with attractive valuation and supportive technical data helped fuel the strong performance for January. European stocks also capped their best start since 1998 as European leaders continue to work on a comprehensive fiscal-discipline treaty in Brussels, as well as a debt-swap pact with Greek bondholders. While we expect European headlines to remain present for the rest of 2012 (especially as Portugal’s borrowing costs have recently risen to record highs), the primary news this month was the Federal Reserve’s announcement to keep interest rates low through at least late 2014. Conservative investors, especially those living on a fixed income, are having to take on more risk in search of extra yield (hence the outperformance of municipal bonds and high-dividend stocks in 2011), which is becoming a popular but expensive trade. We will address this in a future news release. Earnings season is now in full gear; 209 companies in the S&P 500 Index have so far released results, with about two-thirds topping analyst estimates, albeit at a lower rate than previous quarters.

For the month of January, the S&P 500 index finished up 4.5%, the Dow Jones Industrial Average rose 3.5%, while the Nasdaq closed up 8%. International markets also finished the month higher: the MSCI EAFE index rose 5.3% and the MSCI Emerging Market index was up 11%. Materials, Financials, and Information Technology were the best performing sectors, while Telecommunications and Utilities lagged as investors sold last year’s winning groups and bought economic-sensitive stocks. Oil finished mostly unchanged and gold rose $171.80 or 10.9% as the Euro rallied. On the fixed income side, Treasury prices benefited from the Fed’s commitment to keep rates low and prices rose: the 10-year U.S. Treasury yield finished the month at 1.80%, down 8 bps on the month.