What can investors expect after a strong first quarter?
The first quarter of 2011 has been one for the history books. Political turmoil in Northern Africa and the Middle East, as well as multiple catastrophes in Japan rattled many investors, but wasn’t enough to halt the running of the bulls. Despite noteworthy volatility, the Dow rose 6.9% to its best first quarter in 12 years, rebounding 6% from lows hit in mid-March.
January – The year started hesitantly as Americans considered the impact of political transition, both through QE2 measures and the new Republican majority. At the end of the month, political strife in Egypt was affecting world markets. Protests started there on January 25th when thousands of people took to the streets to protest poverty, rampant unemployment, government corruption and the autocratic governance of President Hosni Mubarak.
The price of oil rose with fears about the stability of maritime operations on the Suez Canal. As a major trade route, any interruption or closure has the potential to create a spike in oil and energy prices. Still, on the 31st, the Dow posted its highest close since October 2, 2008.
February – By Valentine’s Day, U.S. stocks climbed to fresh 2 1/2-year closing highs after the resignation of Mubarak removed a layer of uncertainty from global markets. Mubarak’s resignation dramatically reduced geopolitical risk and uncertainty from the region, and crude oil prices dropped to $85.16 a barrel. But the calm would last only a short while before similar issues in Libya made headlines. Although Libya supplies just under 2% of the world's oil supply, oil fears still caused the stock market to suffer its first weekly loss in a month. And while U.S. drivers were already feeling the pinch at the pump, gas prices took their biggest one-day jump in two years adding to concerns about the stability of the economic recovery.
March – On March 11, 2011 an 8.9 earthquake rocked Japan and generated a 30-foot-high tsunami that devastated the country’s northeastern coast. On the heels of this devastating news were reports of several damaged nuclear reactors. Almost immediately, Japan’s recession-burdened stock markets dropped. Many of the nation’s industries, including automotive factories and electronics, were forced to halt operations. Simultaneously, the U.S. participated in establishing a no-fly zone over Libya – a situation that remains unstable. And in the Euro zone, debt woes flared up again as Portugal’s government collapsed and questions about Spain’s solvency persisted. Thankfully, the economic impact of Europe’s debt woes have remained relatively contained to date. Finishing the quarter, the markets struggled to regain their footing after two negative weeks, but by the end of March had managed to recoup losses on positive news regarding 2010’s fourth quarter, increased consumer spending, and higher GDP.
Despite upheaval in the Middle East, Eurozone changes, and an ongoing crisis in Japan, investors appear determined to maintain their confidence. Sending a signal that bodes well for the second quarter, the Dow rose 0.5% on Friday, reaching its highest intraday level since June 6, 2008. Although such positive news should be enjoyed, it is not to say more uncertainty and market volatility won’t arise. Many of the issues introduced in March still linger and remain developing stories. As always though, we are here to help you assess the risks and rewards of investing, to educate you, and to keep you informed. We hope you have a great week!
ECONOMIC CALENDAR: Tuesday – ISM Non-Mfg Index, FOMC Minutes Wednesday – EIA Petroleum Status Report
Thursday –BOE Announcement, ECB Announcement, Jobless Claims
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