Investors ignored weak economic data last week and
bid up stocks to nearly the record-high levels reached at the end of 2013.
Buoyant major indexes rose more than 2% from the previous Friday’s close.

A good season of fourth-quarter earnings reports and
reassuring policy talk from new Federal Reserve Chair Janet Yellen dispelled
potential worries about the pace of U.S. economic growth, which had gripped the
market since late January.

Given the figures, there could have been plenty of
concern: The Fed said Friday that January’s industrial production fell 0.3%,
the first drop since last July and weaker than the plus-0.2% consensus
projection. Meanwhile, retail sales fell 0.4% last month, below expectations of
a flat month. For now, severe weather in much of the country this winter is the
convenient fall guy, but soon enough it mightn’t be.

On the week, the Dow Jones Industrial Average tacked
on 2.3%, or 360 points, to 16,154.39. The Standard & Poor’s 500 index rose
42 points to 1838.63, within spitting distance of the 1848.38 record high. The
Nasdaq Composite index rose 118 points, or 2.9%, to 4244.03.

“Reasonably good fourth-quarter earnings
[indicating] 9% growth” helped propel stocks,” says Joseph Amato,
chief investment officer of Neuberger Berman. Yellen’s remarks Tuesday about
the “continuity” of accommodative policy also helped calm nerves that
otherwise might have been jittery due to the economic data.

Additional rally ammunition, adds Rick Fier, a
trader at Conifer Securities, came in the form of improving European economic
figures—albeit from low levels—as well as from a stabilizing bond market last
week and relatively quiescent emerging markets. Fourth quarter euro-zone gross
domestic product growth was a tepid 0.3%, but it beat forecasts. It feels like
the selling pressure is exhausted for now, he adds.

The market is discounting those soft economic
numbers, but next week, Amato says, will bring a new leg of data, with a number
of early indications of February purchasing-manager indexes from the U.S. and
euro zone. To break out of the trading range the market has been in—roughly
1750 to 1850 on the S&P 500 index—”we need a clearer sense of where
the economy is going,” says Amato.

The big surge late last year might have made
investors forget that there have been relatively lengthy periods inside this
bull market in which stocks traded in a narrow range. “We’ve gone through
sideways periods of four months or more in 2012, and even in 2013,” says
Dan Greenhaus, chief global strategist at brokerage firm BTIG.  

(Source: 
Barrons Online).

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).

Stock-market bulls had their mettle tested last week, as the major indexes fell 3% in the biggest weekly selloff since mid-2012. After last year’s rocket ride, investors who forgot that the U.S. stock market is still tethered to global markets were rudely reminded that it’s a small world after all.

The retreat was sounded, before the U.S. markets opened Thursday, by surprisingly poor economic numbers from China. That snowballed into sizeable currency declines in emerging-market countries around the world, among them Argentina and Turkey. The avalanche moved to U.S. shores, where shares sold off precipitously Thursday and Friday. Unspectacular fourth-quarter earnings and domestic economic reports took a back seat to the global turmoil. Small-cap stocks fell hard, too, as investors switched to the “risk off” trade.

By the end of a holiday-shortened week, the Dow Jones Industrial Average fell 3.5% or 580 points to 15,879.11. The Standard & Poor’s 500 index lost  48 points to 1790.29. The Nasdaq Composite index gave back 1.7%, or 69 points, to 4128.17. The Russell 2000 small cap index fell 3.3% to 1142.66 from a high of 1181.29 Wednesday.

Kate Warne, an investment strategist at Edward Jones, says the Chinese data, much weaker than expected, revived worries of a growth slowdown in the Middle Kingdom. That translated into fear about other emerging markets, many of which are important suppliers of raw materials or other inputs to China. Released before the U.S. markets opened Thursday, the HSBC January China Manufacturing Purchasing Managers’ Index fell to 49.6 from 50.5 in December. A below 50 reading suggests contraction.

 (Source:  Barrons Online).

The stock market ended the week with a mixed return and little
change in the major indexes. Though the Standard & Poor’s 500 index hit a
new all-time high midweek, the rally had no legs, as lackluster quarterly
earnings reports from some major industrial firms released later in the week
depressed share prices. Small-cap stocks, however, rose smartly.

In particular,
quarterly earnings reports from big banks and other financials presented a
varied picture. Most showed strong profitability on an absolute level but some,
like Goldman Sachs (ticker:
GS), suffered a drop in revenue while others, like Citigroup (C), didn’t meet Wall Street expectations, even as
earnings doubled.

The Dow Jones
Industrial Average inched up 22 points, or 0.1%, to 16458.56. The broader
S&P 500 index fell four points to 1838.70. On Wednesday, it reached an
all-time high of 1848.38. The Nasdaq Composite index rose 0.6%, or 23 points,
to 4197.58.

The banks were a
drag on the market last week, says Thomas Villalta, director of investment
research at Covenant, a money manager in San Antonio, Texas. The profit picture
was hard to parse, as exemplified by Goldman and Citi. Others had mitigating or
unflattering one-time items, he adds: “But in general the results were a
bit disappointing.”

Among financial
stocks, the market is focused on revenue growth, says Cameron Hinds, a regional
chief investment officer at Wells Fargo Bank. That continues to be a challenge
for the big banks, he says.

Meanwhile, American Express (AXP)
reported that its fourth-quarter profit more than doubled to $1.3 billion, or
$1.21 per share, yet results missed expectations by one cent. Still, revenue
was higher than anticipated, and Amex shares rose 4% to $90.97.

“There were
some odd divergences” last week, adds Steven Sosnick a senior trader at
Timber Hill. There was no follow-through on market’s new high, and volatility
crept back into the market, he says. That’s going to be a different experience
for investors, who, at least in the latter half of 2013, were used to a market
going straight up.

Wells Fargo’s
Hinds expects the market to rise 10% in 2014, but notes that will require
“consistently good earnings.”

Giant
chipmaker Intel (INTC)
reported earnings and revenues that rose, but the company provided downbeat
2014 revenue guidance and the shares were among the biggest decliners in the
Dow Friday, down 2.6% to $25.85

The Commerce
Department said Friday that housing starts for December came in at a
seasonally-adjusted annual rate of 999,000, 10% lower than November’s 1.12
million.

(Source:  Barrons Online)