April 2011 – Market Commentary


-April was a strong month on all ends as all asset classes saw positive performance.  Without significant market shocks over the month, the market was able to focus on core market drivers.  Very strong corporate earnings combined with solid, if unspectacular, economic news to drive up the equity markets.  Fixed income was up as well, rebounding from a weak March, for its best month of the year.  Investors continue to weigh rising commodity prices and the large U.S. debt load, which prompted warnings from S&P, but remain confident in the Fed’s ability to control long term interest rates.  The U.S. will need to improve upon its meager GDP growth in the first quarter in order to continue the economic recovery, but analysts remain optimistic.

Economic News

-With the announcement that the unemployment rate had fallen to 8.8% in March on 216,000 new net jobs from the private sector, the labor market continues to show signs of life.  The number of job openings increased in February, showing that companies are becoming more willing to hire and the number of workers filling for jobless benefits continued to fall in April.  Consumer confidence rose in April despite rising food and energy prices on a more positive view of the labor market.

-The news only gets worse for the housing market.  Home sales rose in March, but are not substantially higher than the all time low that was set in the previous month.  More importantly, home prices continue to fall.  February marked the 8th straight month of home price declines.  As consumers’ homes’ fall in value they will be less willing to spend given their worse personal balance sheet.  With reduced consumer spending the economic recovery could become even more protracted.

-U.S. GDP growth slowed over the first quarter to an annual rate of 1.8%, however most analysts believe it is just a hiccup in the recovery due to poor weather and rising prices.  Consumer spending and manufacturing continue to perform well and be major contributors to the economy’s growth.

-After the Fed’s most recent policy meeting, Ben Bernanke met with reporters for the first ever press conference and stated that the Fed would end its bond buying program in June and keep rates at the current near zero level.  They plan to keep rates low despite the cost of living rising to an annual rate of 2.7% in March.  The Fed believes the rise in inflation driven by commodities (removing food and energy results in a 1.2% CPI increase) is likely to be temporary and will not spread to core inflation.  The combination of inflation concerns, low interest rates and the current large federal budget deficit has had another affect; they have sunk the dollar.  To end April the dollar fell to its lowest point since the summer of 2008 and it has fallen 8% against a basket of currencies so far in 2011.  The Fed has not followed the European Central Bank’s lead who in April became the first developed economy bank to raise interest rates since the credit crisis began.  Despite several moves by the Chinese government, inflation continues to rise in China, up to 5.4%, twice the pace of a year earlier.   

Corporate News

-Many companies had great news to share with their first quarter earnings releases.  Corporate earnings are up 22% over a year earlier and of the companies who have reported earnings through April, 73% have exceeded analyst expectations.  Oil companies had excellent performance in the first quarter driven by the surge in oil prices.  Exxon-Mobil, Shell, and Occidental all had strong earnings.  Other companies in the black in the first quarter include Alcoa, J.P. Morgan, Google, Halliburton, IBM, Intel, Goldman Sachs, Apple, AT&T, Wells Fargo, American Express, GE, Netflix, Ford, Boeing, Microsoft, and Caterpillar.

-For some firms earnings releases were not as glowing.  Giants of the banking industry Bank of America, Morgan Stanley, Citigroup, and Barclays all saw profits dip in the first quarter with the first three companies’ earnings dropping over 30%.  Wal-mart continues to look to its more successful past to stem the recent tide.  It is amid its worst ever slump, with seven consecutive quarters of sales declines.  Yahoo and Amazon both had profits fall over 28% for the quarter.

-Due to the earthquake and tsunami in Japan, Toyota announced it won’t be able to make a complete return to normal operations until November.  This indicates a likely decline in profitability and fall from its perch atop the auto industry. 

-Researchers discovered that both Google’s Android phone as well as Apple’s iPhone transmits back to Google and Apple information on when and where the phone has been, even when a GPS function is turned off, raising privacy issues.  In response to the public outcry, Apple said it will scale back the information it maintains on users and will not collect the data if a user requests.

Regulatory News

-After much hand wringing and deal making on both sides of the aisle the federal government was able to avoid a shutdown, with a last minute deal that will fund the federal government through the rest of the fiscal year.  With this agreement reached the two parties turned their attention to the nations massive debt load and how to begin to reduce it.  

Market News

– The U.S. Stock market saw another strong month and the best so far this year, pushed ahead by surging corporate earnings, deal news, and increasing consumer spending.  Without the substantial market shocks that occurred over the first quarter investors could focus on the corporate earnings news streaming in that was overwhelmingly positive.  Other than the small decline mid month over the S&P’s warning about U.S. government debt, the markets were less volatile than in past months and trended upward throughout the month.  The Dow and S&P 500 rose 4.13% and 2.96%, respectively, their highest levels in nearly three years.  In April, growth outperformed value across all market caps and large cap outperformed small cap stocks in a reverse of the trend over the past twelve months.  However, in an important milestone, the Russell 2000, which tracks small cap stocks, hit a new all time high.  It is the first major index to do so since the financial crisis.  International developed markets bounced back strongly from March to be the best performing asset class in April, largely on strong corporate news as well.  Developed markets were up 5.98% for the month, while emerging markets rose 3.10%.

-Oil prices backed off of their steep climb in April, but still rose over the course of the month finishing at $113 a barrel.  Consumers are beginning to see the affects at the pump with the average price of gas in the U.S. closing in on $4 a gallon.  Gold surged in April on inflation and concerns over the fiscal strength of governments.  The metal eclipsed the $1,500 mark and settled at $1,556, a new nominal high.

-Bonds had their best month of 2011 as all terms and sectors had positive performance in April.  U.S. credit agency S&P changed its outlook of U.S. Treasury Securities from “stable” to “negative” over the U.S.’ mounting debt.  Prices initially fell, but rebounded as the news could be used as a wakeup call for government officials to reach an agreement to rein in spending.  The strongest performing sectors for the quarter were Corporates and Munis up 1.7% and 1.8%, respectively.  Overall, longer maturities had stronger performance for the month. Agencies had the weakest performance in April.  The 10 year treasury yield dipped slightly over the course of the month ending at 3.32%, a six week low.

Index Performance                                                   April                  YTD

US Large Cap Stock (S&P 500)                                    +2.96%              +9.06%
International Stock (FTSE AW ex US)                         +4.98%              +8.70%
US Broad Bonds (BarCap Aggregate)                           +1.27%              +1.70%
US Government Bond (Barclay’s Govt)                       +1.09%              +1.00%
Cash (ML 3Month T-Bill)                                             +0.02%               +0.07%



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