For the month of January, the S&P 500 returned 4.4% – an impressive move, considering very few in the financial media saw this coming. The January unemployment report was one of the most robust employment reports in many years. This along with improved European concerns and good corporate earnings by US companies provided the fuel for the rally.

The unemployment report found that the private sector economy added 257,000 jobs in January (versus expectations of a gain of just 160,000 jobs) and that the unemployment rate dipped another 0.2 percentage points to 8.3%. This result was much better than expected. Far from fluky, the January employment report was solid in nearly every respect, but more importantly, confirms other data on the economy in recent weeks that suggests the pace of the healing in the labor market has been accelerating. For perspective, 3.7 million private sector jobs have been created since early 2010, while over the last two years governments have shed 500,000 jobs – the vast majority of those coming from the state and local government sector.

Of concern is the potential for President Obama’s budget release next week to become a sobering subject. LPL Financial expects the coming 2013 budget to have the biggest impact of any budget in decades even if no action is taken in Washington. The fiscal headwind comprised of both tax increases and spending cuts under current policy totals over $500 billion, or 3.5% of the Gross Domestic Product (GDP). The 2013 budget changes, primarily consisting of tax increases, are already in the law and would need to be changed to mitigate or restructure them to be less of an economic drag; if not a return to a slower economy may be looming.

Markets will be watching the budget discussion very carefully in 2012 and we think market volatility is a possibility. We are overall positive about the coming year but we wanted to make you aware of this Executive / Legislative branch of government challenge that will be important in the coming elections and important to the economy.

You will be receiving 2011 tax information shortly from LPL Financial. If you need further assistance with information, we will be here to help you in any way we can. The filing date for tax returns this year is Tuesday, April 17, 2012. I presume the IRS is showing they can be flexible in their dates too!

-Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. * Stock investing involves risk including loss of principal. The S&P 500 is an unmanaged index and cannot be invested into directly. Past performance is no guarantee of future results. LPL Financial Weekly Commentary and LPL Financial Market Commentary dated 2/6/2012.