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North America

February 2012

  • The S&P 500 gains 4.5%.
  • Positive economic data boost equities.
  • Interest rates to be held till late 2014.

US equity markets made an assured start to the new year with a respectable gain in January. The S&P 500 index gained 4.5% in dollar, total return terms. The materials and financials sectors were firmly in investors’ favour over the month, returning 11.1% and 8.0% respectively. Telecoms (down 3.9%) and utilities (down 3.7%) received less support.

Better-than-expected December results from the Institute of Supply Management’s manufacturing index got January off to a strong start. The news provided widespread gains for equities and the dollar fell as investors became a little more comfortable with the outlook for the global economy. Employment news was also very encouraging: the US economy added 200,000 jobs in December, beating consensus expectations of 150,000 new roles. Additionally, the unemployment rate fell from 8.7% to 8.5%, the lowest level for nearly two years.

Meanwhile, the Federal Reserve’s latest “Beige Book” (a collection of anecdotal evidence on current economic conditions, gathered by the regional Fed banks), released in January, had a determinedly optimistic air. The report revealed an increase in US economic activity at a “modest to moderate pace” at the end of last year.

Later in the month, the US central bank provided another boost for equity markets when it confirmed plans to keep interest rates low for longer than previously expected. Rates will be kept at a range close to 0% until late 2014. The Federal Open Market Committee cited “economic conditions – including low rates of resource utilisation and a subdued outlook for inflation over the medium run”, in its explanation for the move.

In corporate news, aluminium producer Alcoa kicked off the fourth-quarter earnings season. Although the company reported a loss, a forecast for growth of 7% in the global demand for aluminium helped investors keep their mettle up. Finally, Apple helped to keep the doctor away by reporting the results of an exceptionally fruitful year. The technology giant significantly exceeded both profit and revenue expectations.

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