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NEW YORK (The Street) -- The top performing stocks and sectors for January reflect a backdrop where investors are torn between global risk aversion and strengthening domestic growth.

Tech stocks dominate the top 10 performers for January (see chart below) with many boasting lower valuations and greater perceived growth potential than sectors that rallied hard last year. The sector remains a favorite of fund managers who otherwise emphasize greater divergence between individual stocks in 2014 -- a forecast borne out by the flat returns of tech (-2%) over the month. Bio-techs are in favor for similar reasons, with Alexion Pharmeceuticals (ALXN) - Get Alexion Pharmaceuticals, Inc. Report and medical device maker Boston Scientific (BSX) - Get Boston Scientific Corporation Report cracking the top 10 for the S&P 500.

But their true potential is demonstrated in small-cap land (the Russell 2000) where bio-techs comprise nine of the top 10 stocks for the month. Top performer Intercept Pharmaceuticals (ICPT) - Get Intercept Pharmaceuticals, Inc. Report rallied around 330% in January after promising trials for its therapies to treat chronic liver disease.

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On the flipside, consumer discretionary and financials are suffering. Tepid earnings forecasts, the structural adjustment to online sales and a lackluster holiday period has hurt many retailers, with consumer staples also lagging. Meanwhile, financials have fallen as they adjust to a rising rate backdrop -- one expected to ultimately benefit them in the form of better margins and interest income.

Utilities are also enjoying what may only be a brief respite from higher interest rates, with defensive sectors well-placed to enjoy any swings to risk-on sentiment as emerging market woes linger. But indicators of underlying confidence remain. Both the Russell 2000 small caps index and Dow Transports have outperformed the S&P 500 this month. A willingness by investors to punt on riskier small caps demonstrates confidence, while transportation stocks are seen as a bellwether for economic activity.

The bottom line: markets may be off to a poor start for the year but underlying confidence is alive and well.

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-- By Jane Searle in New York