Innovest's Monthly Commentary for January

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The Markets

During January, large-cap domestic stocks, as represented by the S&P 500 Index, finished the month with a gain of 2.37%, breaking a streak of three consecutive years when the S&P 500 Index started off a new year with a down month. Of the 133 subsectors that comprise the S&P 500 Index, 86 (65%) subsectors posted a gain during the month. Energy was the top performing major sector, up 7.3%. Mid-cap stocks underperformed large-cap stocks and outperformed small-cap stocks. Small-cap stocks eked out a fractional gain in January, significantly underperforming both large- and mid-cap stocks. International equities performed in line with large-cap domestic equities in January. Due to higher commodity prices as well as political instability in Egypt, emerging market stocks faced increased volatility and significantly underperformed their developed counterparts during the month.

In the fixed income markets, high yield bonds finished January up 2.21%, outperforming the 10-Year Treasury (-0.37%) and the Barclays Aggregate Bond Index (0.12%), while underperforming equities for the month. CCC-rated bonds continued their run, returning 3.06% for January while relatively more conservative BB-rated and B-rated bonds returned 1.38% and 2.40%, respectively.  The demand for municipal bonds was curbed in 2010 by concerns over significant budget deficits in many states, a trend that continued into the first month of 2011. According to the Investment Company Institute, net inflows to municipal bond funds totaled approximately $11 billion in 2010, down from $69 billion in 2009. 

The Dow Jones-UBS Commodity index was up 1.00% in January thanks primarily to an increase in demand for metals used in manufacturing.  The price of gold, which finished 2010 at $1,421 an ounce, fell to $1,333 per ounce. During January the price of oil remained virtually unchanged and closed the month at $92.19 per barrel.  REITs outperformed nearly every equity market during January and continued to be one of the best performing asset classes since the equity market lows in March 2009. 

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