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Monthly Market Monitor - February 2010

Market Indices1January ChangeYear-to-Date (01/31/10)
S&P 500-3.7%-3.7%
MSCI EAFE-4.4%-4.4%
Dow Jones Industrial Average-3.5%-3.5%
Russell 2000-3.7%-3.7%

Weak Start to New Year for Markets…
After a strong finish to 2009, most major indexes declined in the first month of 2010. Some of the declines are likely due to profit taking after the sizeable gains in the prior year. The more important question is whether or not markets can regain their winning ways. While it may be tempting for investors to try and predict the course of the year based on one month of data, this would likely be a pointless exercise. January of 2009 saw extensive declines across most indexes, yet 2009 turned out to be a great year for investors that remained in the market. Conversely, January of 2001 was generally a good month, and yet markets finished the year in the red. Most analysts suggest that sticking to asset allocations plans and remaining properly diversified is the correct strategy for investors.

After what turned out to be a fairly contentious debate, Federal Reserve chairman Ben Bernanke won the backing of the Senate for a second four-year term. Some Senators argued that he should not have been reappointed as they felt his handling of monetary policy and bank supervision was not appropriate. Ultimately, the Senate voted 70-30 in favor of Bernanke. In its January statement, the Federal Reserve indicated that its ultra-low interest rates will remain in place “for an extended period.”2 Despite signs of improving economic conditions, the Fed does not see inflationary signals yet and believes that the underlying economy still needs these low rates. For now, the debate as to when the Fed will begin raising rates will continue.

…But Economic Rebound Continues
According to the Bureau of Economic Analysis (a division of the U.S. Department of Commerce), GDP rose 5.7% in the fourth quarter of 2009. While this is an advance estimate and is subject to revision, the final number will still show strong growth. A revised estimate based on more complete data will be released on February 26th. This compares to GDP growth of 2.2% in the third quarter of 2009; underlying trends continue to point to an economic recovery. The growth was attributed to increases in inventory investment and nonresidential fixed investment, combined with a deceleration in imports. Eventually this inventory restocking will slow down, which likely means lower GDP growth (but still positive) in 2010. Many analysts see growth in the 2.5%-3.5% range in the first quarter of 2010 and 2.5%-3.0% for all of 2010.

Since consumer spending makes up about 70% of GDP, it will ultimately be consumers that determine the outcome. Some strategists point out that high unemployment and stagnated wages will keep a lid on consumer spending. Others, however, expect consumers to return to their old spending habits much faster.

  1. Wall Street Journal, 02/01/10
  2. Federal Reserve Board, 01/27/10
Prepared by:Cameron Lavey
Senior Investment Analyst
Research Department, Cetera Financial Group

The views are those of Cameron Lavey, Senior Investment Analyst, Research Department, Cetera Financial Group, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

All economic and performance information is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices. Please consult your financial advisor for more information.

Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards.

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