Dow logs best January in nearly 2 decades

NEW YORK — The Dow has logged its best start to the year in almost two decades.

Stocks rallied in the first week of the year after U.S. lawmakers reached a deal to avoid the “fiscal cliff,” then pushed higher toward record levels as optimism about the housing market recovery grew. Decent company earnings for the fourth quarter and an improving job market also helped lift markets.

The Dow Jones industrial average ended the month up 5.8 percent, its strongest January since 1994, according to S&P Capital IQ data. The S&P 500 finished the month 5 percent higher, its best start to the year since 1997.

“There’s not a whole lot of bears left here,” said Jeff Hirsch, the editor of the Stock Trader’s Almanac, adding that the market may struggle to gain further in February.

Stocks also have benefited as investors have put money into equities in January. By one measure, the monthly flow into stock funds was the largest in nine years.

About $51 billion in net deposits was moved into stock funds and hybrid funds, which invest in a mix of stocks and bonds, consultant Strategic Insight said Thursday. That’s the most since $56 billion flowed in during January 2004.

On Thursday, stocks drifted lower as investors digested more earnings results and reports on the economy. The Dow fell 49 to 13,860.58, the S&P 500 dropped 4 to 1,498.11 and the Nasdaq composite was little changed at 3,142.13.

The Dow is just 304 points from its all-time high.

January’s rally started to slow Wednesday after a report showed that the economy unexpectedly contracted in the fourth quarter of last year.

Stocks have gained against a backdrop of low borrowing costs and a slow but steady economic recovery. The market may struggle to build on those gains in the immediate future as investors turn their attention back to Washington, said Ernie Cecilia, chief investment officer at Bryn Mawr Trust.

The budget deal struck at the start of the year dealt with taxes, but across-the-board spending cuts were pushed back to March 1. While a showdown over the nation’s borrowing limits appears to have been put off, lawmakers have yet to agree on how best to reduce government spending.

Those negotiations could be protracted and increase stock market volatility, Cecilia said.

More government reports Thursday also gave investors a better picture of the health of the economy. The number of Americans seeking unemployment aid rose sharply last week, but remained at a level consistent with moderate hiring.