It’s a good bet investors are relieved that January
is over, as stocks were as cold as the freezing weather on much of the East
Coast last month. The broad market, as measured by the Standard & Poor’s
500, fell 0.4% last week and 3.6% in January. The Dow Jones Industrial Average
fell more than 1% on the week, and closed the month near lows. The index of
mega cap stocks also posted its worst monthly percentage drop, 5.3%, since May
2012.

Increasing concerns about economic distress in
emerging-market nations, such as Turkey and South Africa, among others, led to
under performance among large-cap stocks, which typically have higher international
sales than smaller companies. Little attention was paid to U.S. economic data
released during the week, which was mixed. Quarterly earnings reports that
didn’t meet investor expectations from the likes of Amazon.com (ticker: AMZN) and Boeing (BA) didn’t help sentiment.

The backdrop to the January weakness is the Federal
Reserve’s tapering program, the monthly reduction in its bond-buying stimulus
by about $10 billion. At that rate, the Fed won’t be done until about year end.
All in all, the stock market didn’t give a nice welcome to the new Fed chief
Janet Yellen, whose reign began Feb. 1.

For the week,
the Dow Jones Industrial Average fell 1.1% or 180 points to 15,698.85. Only
four stocks out of 30 had a positive January. The Nasdaq Composite index lost
24 points, or 0.6%, to 4103.88, on the week, and is down 1.7% in January.

There are numerous cross-currents affecting
equities, but the most prominent is the unsettling effect of China’s economic
slowdown on emerging markets. January wasn’t too bad a month for U.S. stocks
until about the 23rd, notes Alec Young, S&P Capital IQ global equity
strategist, when a preliminary reading from the January HSBC China Purchasing
Managers’ Index showed the first contraction in six months.

With the kind of fourth-quarter run that equities
had last year, up 10%, and the strongly bullish consensus that opened the new
year, investors were primed for a reversal, he adds.

“Sentiment got so elevated that it didn’t take
much to drop stocks,” adds Stephen Massocca, a portfolio manager at
Wedbush Equity Management.

(Source:  Barrons Online).