Weekly Update – March 12, 2012
Three years ago Friday, the Dow Jones Industrial Average saw one
of its darkest days. Closing at its Great Recession low of 6,547, investors
cringed to see how far stocks had fallen from their October 2007 high of
14,164.[i]
Since that day, we’ve experienced one of the greatest three-year runs in the
history of the stock market, superseded only by the dot-com craze of the late
nineties and the recovery from the Great Depression.[ii]
Stocks have returned with remarkable resilience. Between the
“flash crash” of May 2010, the European financial crisis, the downgrade of the
U.S. credit rating by Standard and Poor’s, fear of default by the U.S.
government, high gas prices, and supply disruptions surrounding the Japanese
tsunami, it’s amazing we’ve made it to where we are.
When you look at both the climb we’ve seen and the challenges
we’re facing, it’s not surprising that many analysts are calling for a pullback
in the near future. Even so, stocks managed to hold their own last week. After
a couple of rough days, Wall Street logged three winning sessions on the back
of a better-than-expected employment report. The S&P eked out a gain of
0.1% for the week, while the Dow dropped 0.4%, and the Nasdaq gained 0.4%.[iii]
While Friday’s jobs report was hotly anticipated, the market’s
reaction to it was surprisingly muted. The Labor Department reported that
227,000 new jobs were created while the unemployment rate remained the same as
February’s at 8.3%. If so many new jobs were created, why is the unemployment
rate the same? Well, while new jobs were created, the total number of job-seekers
increased as more people began actively looking for work. When the job market improves,
people who had previously dropped out of the hunt start applying for jobs again,
affecting the unemployment rate. Clearly, while the employment situation is actively
improving, we still have a long way to go.[iv]
Also supporting market performance last week was
news that Greece succeeded in convincing bondholders to swap their old bonds
for new ones valued at much less. In accomplishing this, Greece cleared a major
hurdle to avoiding a disorderly default.
We are living during one of the most interesting
times in history. Each week, as we analyze the stock market and the economy, we
find both positive and negative factors to weigh when making investment
decisions. We strive to do this with diligence and skill. All things
considered, we trust that the same resilience that brought us to Friday will
carry us into the future; even though there are sure to be bumps along the way.
ECONOMIC CALENDAR:
Monday:
Treasury Budget
Tuesday: Retail Sales, Business Inventories, FOMC
Meeting Announcement 2:15 PM EST
Wednesday: Import and Export Prices, EIA
Petroleum Status Report
Thursday: Jobless Claims, Producer
Price Index, Empire State Mfg. Survey, Treasury International Capital, Philadelphia
Fed Survey
Friday:
Consumer Price Index, Industrial Production, Consumer Sentiment