Market Update 1st Quarter 2012
The S&P 500’s 12% return in the first quarter of 2012 is its best performance since 1998. We attribute this to a series of positive economic news from the manufacturing and unemployment sectors.
The Institute for Supply Management’s (ISM) manufacturing survey showed a rise to 53.4, with a reading above 50, which indicates an expansion. New orders also remained strong in the first quarter. Many credit the warm winter for bringing people into the stores and lifting retail sales.
We also saw some improvement on the unemployment numbers while the news from Europe began to quiet down. Meanwhile as the stock market moved up sharply, bonds moved down sharply. The yield on the 10-year Treasury bond rose to 2.22%, an increase of 18% from the 4th quarter of 2011 (remember, as bond prices fall, the yield rises).
Now that spring is here many believe it will be difficult to achieve further positive surprises on the unemployment numbers. In fact, the numbers reported in April, for March, showed softness in the magnitude of the number of new jobs added. And, once again, the European debt crisis is stirring, now with the focus on Spain. We also have a confirmation of slowing GDP in China and the potential for even higher oil prices. Lastly, fiscal issues here in the United States will loom again in the second half of this year. Some of the issues we will face include the expiration of the Bush-era tax cuts, the expiration of the payroll tax cut and a debt ceiling that will need to be raised once again.
Dividend paying stocks remain an attractive investment compared to bonds, cash and high beta stocks. At CAIM we will be using the weakness in the markets to add to our portfolios.