A
Difficult Week
Even
as we share this update with you, the events that unfolded last week in
Massachusetts and Texas are still fresh in our minds. Our hearts will remain
with the victims and their families, as well as the residents of Boston and
West Texas, as they rebuild their lives from these tragedies. In times like
these, we are reminded of the things that are truly important in life. If there
is anything we can do for you or someone you know who was affected by any of last
week’s events, please don’t hesitate to ask for our help.
It
was also a difficult week for equity markets, as major indices experienced
their biggest drop so far this year, pummeled by earnings reports and global concerns.
For the week, the S&P 500 lost 2.11%, the Dow fell 2.14%, and the Nasdaq trimmed
2.70%.[1]
Earnings
drove much of the selloff last week. Although the earnings reported thus far have
largely beat estimates, disappointing reports from a handful of companies had
an oversized effect on markets.[2]
While 70% of the reports have beaten earnings estimates, only 44% have beat
revenue expectations. This indicates that earnings results have largely been
achieved by cost-cutting measures rather than organic growth. One factor that
appears to be driving the weakness in revenue growth is soft demand overseas.[3]
Markets
reacted poorly to China’s unexpectedly poor first-quarter GDP report, which
showed a weak 7.7% growth instead of the 8%+ growth analysts had been
expecting.[4]
This indicates that China’s recovery may still be fragile. Coupled with
concerns about Europe, it’s clear that global economies still have a long way
to go.
On
the positive side, investors responded well to Tuesday’s upbeat economic data,
which shows that the news isn’t all bad. On the housing front, the Commerce
Department reported that March housing starts increased by 7.0% from February’s
estimate, while building permits declined slightly (though they are still 12%
above March 2012 numbers).[5]
A key measure of inflation also declined, supporting Fed chairman Ben
Bernanke’s position that inflation is not an issue for now. Manufacturing also
appears to be on the upswing; the Fed’s report shows that industrial production
increased by 0.4% in March, beating expectations.[6]
In
recent weeks, disappointing jobs numbers, slumping consumer confidence, and
other weak data has indicated that the economy could be slowing down. However,
the Fed’s most recent Beige Book survey shows no sign of such a slowdown. The
report shows that despite prevailing concerns, the economy continued to grow at
a moderate pace, bolstered by a vibrant housing sector and auto sales.[7]
With so much conflicting data to review, many people struggle to make sound
investment decisions. If you have any questions about how certain factors could
affect you or your portfolio, please don’t hesitate to reach out to us. We
pride ourselves on helping our clients cut through the clutter to develop
strategies that are suitable for them and their goals.
As
mentioned earlier, our thoughts are with the victims of Monday’s Boston bombing
and those affected by the Texas plant explosion. It can be hard to think
positively during such times, but we are proud of the swift work of first
responders and investigators, and the way Americans have reached out in support
of those in need.
HEADLINES:
Initial unemployment claims rise slightly. Unemployment claims jumped last week
to 352,000, higher than the estimate of 347,000; the jump brings the 4-week
moving average (a less-volatile measure) back in line with February numbers.
Despite appearing to be stuck in neutral, unemployment claims are still
significantly lower than the same time last year.[8]
Earthquake rocks Sichuan Province China. A magnitude-7 earthquake struck the
southwestern province early Saturday morning, killing over 150 and injuring
thousands. The earthquake triggered power outages and landslides in the same
region that experienced a 2008 earthquake that left nearly 70,000 confirmed
dead.[9]
Italy’s current president re-elected for a second term. Amid squabbling between party
leaders, Giorgio Napolitano became the first Italian president to be asked to
serve a second term. While European leaders reacted with relief, many view the
election result as a sign of political stagnation.[10]
Gold retreats further in massive selloff. The precious metal’s biggest drop in
30 years came as investors rushed for the exits, and worries of margin calls
have spooked goldbug investors. While gold is traditionally seen as a “safe
haven” investment, it is also a historically volatile investment, falling an
average of 31.6% in bear markets.[11]
QUOTE OF THE WEEK:
“You miss 100% of the shots you
don't take.” – Wayne Gretzky
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