Stock Market Report – January 2011

The month of January led to some surprisingly strong economic numbers as statistics for the 4th quarter of 2010 were released. The economy grew at a 3.2% annualized rate, fueled by a strong consumer spending number. Corporate earnings from the 4th quarter also were generally positive, giving the markets positive momentum.

The Federal Open Market Committee of the Federal Reserve decided to keep rates at their historical low levels. While the economy grew, the FOMC still appears concerned with unemployment above 9% and the continually lethargic housing sector. These factors may have a dampening effect on the strong consumer spending. Due to the Fed keeping rates stable, businesses should continue to benefit from low borrowing costs.

Protests spread across North Africa and the Middle East in January, with the primary focus on Egypt. While the broad U.S. markets tended to shrug off the news, investors still paid close attention to the situation. If protests continue to intensify and the political situation destabilizes, it is possible the strategically important Suez Canal could be affected. A significant amount of oil passes through the canal each day.

STOCK MARKET PERFORMANCE

Overall, the month of January 2011 was strong for stocks. The Dow Jones Industrial Average returned 2.85% for the month, while the broader S&P 500 Index gained 2.37%. The Nasdaq Composite Index, heavily weighted by technology-based companies, increased by 1.78% for the month. Large US equities produced the best January in recent years.

BEST PERFORMING STOCKS

NVIDIA Corporation (NVDA)
This video-chip maker was up 59.6% for the month due to strong earnings and legal settlements. NVIDIA agreed to settle its legal action against rival chipmaker Intel for $1.5 billion and have signed a cross-licensing agreement to hopefully avoid future disputes. NVIDIA also announced plans to produce central processors for PCs, expanding upon its core graphic chip operations.

Micron Technologies (MU)
Continuing with the theme of chipmakers, Micron Technologies rose 33.4% in January. Strong investor optimism fueled by positive analyst ratings and upgrades brought buyers into the market for Micron shares. Many analysts cited a stronger environment for technology and forecasted more stable pricing for chips, which investors believe will lead to strong earnings for Micron in the future.

Valeant Pharmaceuticals International (VRX)
Valeant stock returned 29.5% in January due primarily to strong company guidance for 2011. The firm projected earnings for the current year which were far above analyst expectations, causing many to upgrade their rating on the company. The stock may have also gained in anticipation of a merger announced on February 1st in which Valeant agreed to purchase rival company PharmaSwiss, a move applauded by investors.

Intuitive Surgical (ISRG)
Intuitive Surgical stock jumped significantly as the company announced 4th quarter earnings which far exceeded investor expectations. Net income rose to $3.02 per share, outpacing the $1.95 per share from the previous year and eclipsing expectations of $2.25 per share. This maker of robotic medical equipment forecasted continued strong demand for its da Vinci Surgical System. Shares rose 25.7%.

Marathon Oil (MRO)
Rising oil prices were not the only reason for investors to buy shares of Marathon. The large oil company announced plans to spin off its large oil refinery business operations and will focus its efforts on oil and gas exploration. Analysts have long considered the refinery segment the weakest part of the Marathon portfolio, and by separating the operations from the parent company, investors are hoping for better earnings performance. Marathon stock improved by 24% in January.