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Monthly Market Monitor - January 2011

Market Indices1JanuaryYear-to-Date
S&P 500+2.37%+2.37%
MSCI EAFE+2.37%+2.37%
MSCI Emerging Markets-2.69%-2.69%
Barclays U.S. Aggregate Bond+0.12%+0.12%
Barclays Municipal-0.74%-0.74%
Barclays US Corporate High Yield+2.21%+2.21%

Global equity markets started off 2011 where they left off in 2010 and posted another month of positive gains, with the MSCI All-Country World Index returning +1.6% for the month of January. Despite the positive gains for the month, January did finish off on a bit of a sour note as equity markets faced some pressure as a result of heightened concerns surrounding the political riots in Egypt. However, the political upheaval in Egypt appears to be contained locally and does not to appear to pose a threat to global markets or economies broadly, although oil prices did jump roughly $5 to over $90/barrel on the news.

In the U.S., equity markets witnessed another month of strong gains as the S&P 500 returned +2.4%. And although the unrest in Egypt and the Middle East was enough to break the 8-week rally on the Dow Jones Industrial Average during the last week of January, the month saw the Dow cross the 12,000 level for the first time since June 2008, and also marked the index's best January performance since 1997. The positive performance for the month was driven by strong performance in the Energy and Basic Materials sectors, and was also buoyed by the news that consumer spending accelerated to its fastest pace in over four years. Small cap stocks, which had been on a tear during the last four months of 2010, eased up in January and posted a modest -0.3% decline as measured by the Russell 2000.

Equity markets outside the U.S. were mixed for the month of January but on balance were positive. January returns in the developed non-U.S. equity market were essentially identical to the returns generated in the U.S., as the MSCI EAFE Index matched the S&P 500's +2.4% return. And also similar to the U.S., non-U.S. small cap stocks lagged large cap stocks in January, while value stocks reversed a recent trend and outpaced their growth counterparts during the month. Emerging market equities posted negative returns in January as the asset class, which returned -2.7% for the month as measured by the MSCI Emerging Markets Index, pulled back a bit after generating very strong returns in 2010.

The bond market was little changed for the month of January, returning just +0.1% as measured by the broad Barclays U.S. Aggregate Bond Index, as interest rates inched higher during the month. Investment grade corporate bonds were essentially flat for January while riskier high yield "junk bonds" saw a second month of strong performance, returning +2.2% on top of December's +1.8% gain.

Municipal bonds, however, were negative again in the month of January as measured by the Barclays Municipal Bond Index, returning -0.7% on top of December's -1.9% return. Municipal bonds continue to be hurt by increasing outflows out of municipal bond mutual funds, as investors' fears surrounding the budget challenges confronting state and local governments mount. Although a number of municipalities face significant budget challenges, we feel that the fears broadly being cast on the asset class are unwarranted and are being unduly perpetuated by the media. Municipal bonds are still an important component to a tax efficient diversified portfolio and should continue to be held and managed by experienced professionals in client portfolios.

  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.

Securities and insurance products are offered by PRIMEVEST Financial Services, Inc., a registered broker/dealer. Member FINRA/SIPC. PRIMEVEST Financial Services is unaffiliated with the financial institution where investment services are offered. Investment products are * Not FDIC/NCUSIF insured *May lose value *Not bank guaranteed *Not a deposit * Not insured by any federal government agency.