How far will this ‘pullback’ go for the US markets?
Following the strongest quarterly performance since 2008 and the best first quarter performance since 1998, major indices retreated this week, weighed down by disappointing economic reports and renewed concerns over Europe’s debt crisis. The string of losses before Friday’s market holiday left the S&P, the Dow, and the Nasdaq all slightly lower. This is only the third weekly loss for the stock market in 14 weeks of trading.
A positive ISM Manufacturing Index report pushed stocks higher on Monday, but sentiment shifted on Tuesday as the Fed’s FOMC meeting minutes revealed that because of an optimistic view of the economic recovery, the Fed is unlikely to buy bonds to further stimulate the economy. It should not come as a surprise to investors that the Fed’s monetary policy is conditional on economic developments. If the economy takes a turn for the worse, there is little doubt that the Fed will step in again. Interestingly, you might be inclined to think that an optimistic view from the Fed would be good for stocks, but this highlights that stocks move for a variety of reasons not always linked to economic performance and pundit predictions.
Friday’s employment report indicated that jobs growth had slowed considerably in March, but there were also significant positive signs to be found in its pages. The unemployment rate dropped, and the underemployment rate – which counts jobless people looking for work, part-time workers who want full-time jobs, and discouraged job seekers – fell to a three-year low of 14.5% from 14.9% in February, one of the largest monthly drops on record. This is a key number in the government’s monthly employment report, and it’s one that we are happy to see moving down.
Concerns surrounding Europe’s sovereign debt crisis flared again after Spain’s latest debt auction drew underwhelming demand, and yields on Spanish government bonds rose on fears that they may have trouble paying back their debt. Clearly, more time will be needed before we can put this drama behind us.
This week’s losses were not at all unexpected. Mediocre economic reports, lingering doubts about the Fed’s future monetary policy, and renewed concerns about Europe’s problems all played a part in the retreat. We might see further losses in the weeks to come, but let’s keep focused on the underlying trends: the U.S. economy is improving, the job market is improving, and we are on track for a solid year of economic performance. When short-term losses threaten your peace of mind, focus on your long-term strategy and remember that we are actively monitoring the economy and world equity markets, and will keep you updated.
ECONOMIC CALENDAR:
Wednesday: Import and Export Prices, EIA Petroleum Status Report, 10-Yr Note Auction, Beige Book, Treasury Budget
Thursday: International Trade, Jobless Claims, Producer Price Index
Friday: Consumer Price Index, Consumer Sentiment
HEADLINES:
U.S. retailers report better-than-expected gains in March. Motivated by unseasonably warm weather and a brighter economic picture, shoppers pushed retail sales for the month of March higher than expected with a 3.9% gain, according to data from research firm Retail Metrics, which originally estimated March sales would rise 3.3%.
Factory orders rose 1.3% in February. The Commerce Department report states that orders to U.S. factories increased in February. Businesses’ ordering of more machinery and equipment indicates that many are investing in their companies despite the expiration of a tax credit.
Independent ratings firm downgrades U.S. credit level. Ratings firm Egan-Jones lowered its senior debt rating on the U.S. to AA, its third highest rating, down one notch from AA-plus. The firm is concerned about the ballooning federal debt, which could rise to $16.7 trillion by the end of 2012.
Gas prices averaged $3.97 nationwide on Friday. The average price for a gallon of gasoline rose 3.74 cents over the past two weeks, the smallest increase since January, according to the nationwide Lundberg Survey. However, according to the report, gas prices already are falling in some cities, such as Chicago and Los Angeles, indicating that we may have already seen the price peak.
QUOTE OF THE WEEK:
"Happiness and success are inner processes that we bring to life’s undertakings, rather than something we get from ‘out there’ Dr. Wayne Dyer
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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
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