THE FIRST QUARTER IN REVIEW
STOCK MARKET RALLY CONTINUED
The stock market followed 2009's powerful rally with a strong
performance in the first quarter. The S&P 500 rose 4.9%,
excluding dividends, which was its best first-quarter percentage
gain since the heady days of 1998, according to MarketWatch. Strong
corporate earnings, solid corporate balance sheets, and upbeat
manufacturing data helped support the stock market's bullish
results, according to The Wall Street Journal.
It wasn't a straight line up, though. Between late January and
early February, the Dow Jones Industrial Average dropped more than
7% as news of credit tightening in China, sovereign debt woes in
Greece, and debates in Washington on healthcare and bank reform
helped scare investors, according to The Wall Street
Journal. The scare was brief as investors quickly "bought the
dip" and sent the averages higher by the end of the quarter.
INTEREST RATES WERE STABLE
The yield on the 10-year Treasury was essentially unchanged
during the quarter as investors continued to snap up all the debt
the government offered, according to The Wall Street
Journal. Demand for corporate and high-yield bonds was robust
which helped keep those rates at relatively low levels.
Some investors are concerned that our large budget deficits may
result in a glut of bonds, which could cause interest rates to rise
substantially. That could put the brakes on an economic recovery,
but this worry has not come to fruition--yet.
|
Data as of 3/31/10
|
1st Q
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
4.9%
|
46.6%
|
-6.3%
|
-0.2%
|
-2.5%
|
|
DJ Global ex US
(Foreign Stocks)
|
1.6
|
59.2
|
-6.6
|
3.8
|
0.7
|
|
10-year Treasury Note
(Yield Only)
|
3.8
|
2.7
|
4.7
|
4.5
|
6.0
|
|
Gold
(per ounce)
|
1.0
|
21.7
|
19.0
|
21.1
|
15.0
|
|
DJ-UBS Commodity Index
|
-5.1
|
20.4
|
-8.4
|
-4.0
|
3.0
|
|
DJ Equity All REIT TR Index
|
9.9
|
106.5
|
-10.4
|
4.0
|
11.8
|
| Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS
Commodity Index returns exclude reinvested dividends (gold does not
pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested
dividends and the three-, five-, and 10-year returns are
annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time
periods.Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association.Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested into
directly. N/A means not applicable or not available. |
THE DOLLAR ROSE AGAINST THE EURO
The big story in foreign currencies during the first quarter was
the strength of the dollar against the euro. According to The
Wall Street Journal, the dollar rose 6% against the euro as
debt concerns in Greece, Portugal, and Spain weighed on the common
currency. Investors are also evaluating the relative strength of
the U.S. economy versus the euro countries and it appears that a
consensus is building that our country may grow faster. If that
occurs, it may mean interest rates could rise sooner in the U.S.,
which would also help support a strengthening dollar.
DOUBLE DIP RECESSION LOOKING LESS LIKELY
Recent economic indicators suggest the economy is healing from
the severe recession of 2008-2009. For example, the Commerce
Department said consumer spending rose in February for the fifth
consecutive month. Consumer spending makes up about 70% of gross
domestic product, according to Morningstar, so a rise in this
number bodes well for the economy. The manufacturing sector is
looking robust, too, as the ISM manufacturing diffusion index rose
to 59.6% in March, which was its highest level since July 2004,
according to MarketWatch. Readings over 50% indicate that more
firms said business was improving than said it was worsening. It
was also the eighth straight monthly increase.
Just after the quarter ended, the Labor Department released the
March payroll report and it showed a gain of 162,000 payroll jobs.
It was the third gain in the past five months and the largest
increase since March 2007. This report, coupled with other economic
data, prompted Robert Hall, the head of the National Bureau of
Economic Research's Business Cycle Dating Committee, to say that it
is "pretty clear" that the deepest recession since the 1930s is
over, according to a Bloomberg report. Hall's organization is the
"official" source on declaring the beginning and ending of
recessions. Jeffrey Frankel, another member of the business cycle
dating committee, said, "The most likely date for the recession's
end would be midyear of 2009," according to the same Bloomberg
report.
This mid-2009 date would seem to confirm the validity of the
stock market rally that we've experienced over the past year. The
market started rising in March 2009--not too far ahead of the time
that Frankel suggested the recession ended.
SUMMARY
The stock market performed well in the first quarter as earnings
growth continued to shine and the economy continued to mend.
Longer-term issues such as large government deficits, housing
weakness, and the withdrawal of stimulus money hang over the
markets like a black cloud, but so far, these concerns have not
deterred investors.
For your convenience the sources
have been listed below:
online.wsj.com/article/SB10001424052702304434404575150820255474634.html
www.marketwatch.com/story/small-cap-stock-funds-notch-big-gains-in-quarter-2010-0...
online.wsj.com/article/SB10001424052702303338304575155783578400478.html
www.marketwatch.com/story/emerging-market-corporate-bond-funds-top-quarter-2010...
online.wsj.com/article/SB10001424052702303601504575153803123166036.html
www.bea.gov/newsreleases/national/pi/2010/pdf/pi0210.pdf
www.marketwatch.com/story/material-energy-stocks-lead-us-markets-higher-2010-03-29
news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/201003290942DOWJONES...
www.marketwatch.com/story/us-ism-manufacturing-index-rises-to-6-year-high-2010-04...
www.bloomberg.com/apps/news?pid=20601087&sid=a_m4UWCu_Rrg&pos=2
www.brainyquote.com/quotes/quotes/j/josephasc155474.html
