March 2010 – Market Commentary

• Consumers began spending and companies began hiring again in March.  The US stock market completed its best first quarter since 1999 as the S&P 500 gained 5.39% on stronger than expected corporate earnings and continued signs that the broader economy is improving.   Unemployment held steady, the EU agreed on a deal to bailout Greece, and the market responded positively to the passage of landmark healthcare legislation.  Overall bond values fell slightly with the highest quality bonds fairing the worst.

Economic News:
• The DOL’s report showed that the unemployment rate remained flat at 9.7%.  Although the report indicated a rise in temporary workers, the figures were viewed as a clear sign that the unemployment had topped out in the fourth quarter of 2009.

• A Government report showed strong growth in fourth quarter corporate profits as the economy rebounded from a deep recession.  GDP growth was revised slightly downward to an annual rate of 5.6%.

• Downward pressure on wages continued to keep inflation low as a report showed that consumer prices were unchanged.

Government News:
• The Fed announced an end to its $1.25 trillion program to purchase mortgage backed securities – which had been a primary support for the US economy.  Markets took the news in stride signaling strength in the overall capital markets.

• The Supreme Court rejected a lower court ruling that protected mutual fund managers from liability related to excessive mutual fund fees.

• A barrage of insider trading scandals broke in March:  an employee of hedge fund Moore Capital was arrested on insider trading charges amid a major crackdown in the UK;  Appaloosa and Carlson Capital are being examined by regulators for bets made against stocks in new offerings; a UBS investment banker has been accused of improper trading in advance of numerous healthcare mergers; and  more than a dozen Wall Street banks and investment firms are suspected of being involved in price fixing in the muni-bond market.

• Four banks were seized by the FDIC in March, bringing the total since the beginning of 2008 to 206.

Corporate News:
• Google stopped censoring its search results in China.  In doing so, they risk losing their footprint in what is widely viewed as the most important consumer market in the world.  The move was met with resentment and confusion in China as users, employees, and partners brace themselves for the Chinese Government’s reaction.  Ultimately, the Chinese Government blocked access to the Google site.

• US corporations are emerging from the recession leaner and meaner but with fewer employees and lots of cash.  Cash acquisitions of US corporations more than doubled in the first two months of 2010 as stockpiles of cash begin to loosen.

• Oracles profit fell 11% amid costs from its takeover of Sun Microsystems – but sales rose for the second straight quarter.  Best Buy’s earning rose a better-than –expected 37%.  Ford posted a 43% rise in February sales compared to last year.  FedEx profits doubled as the global economic recovery broadened.

• US car sales rose early in March indicating that the industry’s recovery is continuing to pick up speed.  Chinese automaker, Geely, bought Volvo from Ford for $1.8billion.  The move vaults China onto the global automotive stage.


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