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Is this the start of a
Market Correction?
Markets pulled back
last week as investors reacted to several disappointing economic reports and
expressed concern that a spring swoon is around the corner. For the week, the
S&P 500 lost 1.0%, the Dow trimmed 0.1%, and the Nasdaq fell 1.9%.[i]
The big news last week
was Friday’s job report, which showed a drop in the overall unemployment rate
from 7.7% in February to 7.6% in March. However, much of the drop can be
attributed to discouraged job seekers who stopped looking for work rather than
organic job creation. Unfortunately, the economy only added a disappointing
88,000 new jobs in March, about half the number economists were expecting.[ii]
Earlier in the week, payroll processor ADP released a report showing that
private employers added just 158,000 jobs in March, missing expectations of
200,000 new jobs.[iii]
Despite the poor data, it’s usually unwise to read too much into a single
report, since monthly job data is notoriously volatile.
In Washington,
President Obama announced his intention to offer cuts to Social Security
benefits and other government programs as a concession to Congressional
Republicans, though no plan is final. While the White House's proposal could
help to cut the federal deficit by $1.8 trillion over the next decade, it
definitely has some drawbacks.[iv] All
political affiliations aside, cuts to any programs are bound to be painful, but
may also be necessary to get U.S. spending back on track. All this back-and-forth
we are seeing is a sobering reminder of how much work still needs to be done to
get the nation’s fiscal house in order; there is still a long road ahead.
Looking forward,
investors will be watching first quarter earnings reports (which will start
trickling in this week) and economic data to get a sense of how the economy is
doing. Should initial earnings reports show weakness, stocks could experience
further downside, though short-term consolidations are a common occurrence of
healthy markets, and should not be viewed as a cause for alarm.
ECONOMIC CALENDAR:
Wednesday: EIA
Petroleum Status Report, FOMC Minutes, Treasury Budget
Thursday:
Jobless Claims, Import and Export Prices
Friday: Producer Price Index, Retail Sales, Consumer Sentiment, Business
Inventories
HEADLINES:
IRS audits of wealthy taxpayers targets 1 in 8 high earners. New data from the IRS shows that taxpayers with taxable incomes of
$1 million or more were audited 12 times more than the total population. These
audits are proving lucrative for the IRS, netting an average of $117,000 per
return.[v]
Portuguese court rejects some austerity measures, upholds others. In a blow to government finances, Portugal’s highest constitutional court rejected cuts in pension benefits and reductions in leave, but upheld other measures. The ruling will likely reduce the cash-strapped government’s revenues by as much as $1.17 billion.[vi]
Approximately 15% of the U.S. receives food stamps. Food stamp use grew 1.8% since January 2012, showing that one of the country’s largest social welfare programs is still growing. Though annual growth is increasing, the pace of growth is slowing as the economy improves.[vii]
Bank of Japan doubles down on bonds. In an effort to shake off nearly two decades of deflation, the Bank of Japan will begin a new quantitative easing program, purchasing 6.2 trillion yen in April and a further 7.5 trillion yen in six future installments (total of approximately $1.4 trillion.) While this may help boost economic growth, it will add to Japan’s already unsustainable public debt load. [viii]
QUOTE OF THE WEEK:
““Logic will get you from A to B.
Imagination will take you everywhere.” Albert Einstein
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