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Monthly Market Monitor - February 2011

Market Indices1FebruaryYear-to-Date
S&P 500+3.43%+5.88%
MSCI EAFE+3.32%+5.77%
MSCI Emerging Markets-0.92%-3.59%
Barclays U.S. Aggregate Bond+0.25%+0.37%
Barclays Municipal+1.59%+0.84%
Barclays US Corporate High Yield+1.31%+3.55%

Global equity markets marked a third month of gains in February as investors welcomed bullish signposts found in improving corporate profits and still accommodative U.S. monetary policy. However, the February gains were challenged by a late month sell-off stemming from protestor contagion spreading across the Middle East and North Africa; most recently moving from Egypt to Libya. Libya, an OPEC oil member and the world’s 12th largest oil producer, declared force majeure on halted oil production contracts, driving oil prices above $100/barrel for the first time since October 2008.

Despite the late month sell-off, U.S. equities posted another month of strong gains as the S&P 500 returned +3.4% for the month. The fourth quarter earnings season wound down on a high note in February as nearly ¾ of the 462 companies in the S&P 500 index to report results to date have delivered earnings that topped analyst’s forecasts. Moreover, U.S. manufacturing activity continues to impress, with February ISM PMI factory index readings rising to their highest levels since May 2004. Energy and Consumer Discretionary sectors were February’s biggest winners, up 6.3% and 5.2% respectively; while Telecom and Utilities saw the smallest gains, up 0.8% and 0.2% respectively.

Despite the civil unrest across the Middle East and North Africa, non-U.S. equity markets in developed nations managed to echo the US monthly performance, as the MSCI EAFE Index returned 3.32% in February. However, the MSCI Emerging Markets Index fell nearly 1%, as the region was hurt by broad-based price gains in raw material key commodities.

Core U.S. bonds posted a modest +0.25% gain in February as measured by the Barclays U.S. Aggregate Bond Index as bond market yields rose for a fourth straight month, its longest string of yield gains since June 2008. Bondholders continued to move out of the asset class in favor of equity-related securities during the month as concerns surrounding the upward direction of interest rates continues to mount. Municipal bonds bounced back smartly in February from an oversold condition following several months of losses. The hard-hit asset class outperformed their corporate and government bond brethren during February, with the Barclays Municipal Index returning +1.59% versus the corporate debts’ +0.48% return and the US Treasury’s slightly negative return of -0.23%.

  1. Morningstar Direct

Prepared by:Alex Kaye, CFA, Head of Research and Richard Anderson, Equity Research Director, Research Department, Cetera Financial Group

The views are those of Alex Kaye, CFA, Head of Research, and Richard Anderson, Equity Research Director, 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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