Weekly Update – April 30, 2012

The trading week started off slowly as investors absorbed further troubling news
about the state of the global economy: Disappointing manufacturing reports from
China, France, and Germany, plus news that the Netherlands might be heading for
its own fiscal crisis.[i]

Things turned around later in the week though, as domestic equities closed higher on positive news surrounding U.S. corporate earnings. The Dow managed to recoup all its April losses, closing up 1.53% for the week, while the S&P rose 1.80%, and the Nasdaq gained 2.29%. For the moment, corporate earnings are providing a positive counterpoint to lackluster economic news.

 

The state of our nation’s economy was also in the spotlight last week. Gross
Domestic Product (GDP) grew by 2.2% in the first quarter, down from 3.0% in the
fourth quarter of 2011. The biggest factors in the slowdown were slower
inventory-building by private companies and less defense spending by the
federal government. Thankfully, consumer spending – the largest contributor to
GDP – is still strengthening, which should lead to ongoing improvement in our
overall economic picture.[ii]
In keeping with its upbeat tone, the Fed added 20 basis points to its 2012 GDP forecast, increasing predicted growth to between 2.4%-2.9% this year. The Fed also agreed to keep interest rates between 0.00%-0.25%, and expects inflation to remain below 2.0% for the next two years. During the follow-up press conference, Chairman Ben Bernanke stated that the Fed was still prepared to take an active role in the recovery.[iii]

Unemployment claims continue to remain near a three-month high, indicating that employers have stepped-up layoffs and are reluctant to increase hiring. However,
economists believe that the mild winter distorted first-quarter hiring, making it appear unusually strong. Overall, the economy has continued to add jobs and unemployment is falling well ahead of estimates.[iv]

 

Regardless of what happens with short-term market movements and news from abroad, we are
grateful to see that the U.S. economy is recovering from the financial crisis better than any other economy in the world right now. This is likely a major reason why we have seen domestic equities performing so well lately – when compared with the rest of the world, U.S. companies are the prettiest girl at the dance. While
there are sure to be bumps in the road ahead, corporate balance sheets are strong, the job market is slowly improving, consumers are still spending, and our economy is chugging along.

 

 

ECONOMIC CALENDAR: 

 

Monday:

Personal Income and Outlays, Chicago PMI, Dallas Fed Mfg. Survey

 

Tuesday: Motor Vehicle Sales, ISM Mfg. Index, Construction Spending

 

Wednesday: ADP Employment Report, Factory Orders, EIA Petroleum Status Report

 

Thursday: Jobless Claims, Productivity and Costs, ISM Non-Mfg. Index

Friday: Employment Situation

 

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