Monthly Economic Update April 2012
U.S. economic growth slowed in the first quarter as annualized GDP growth dropped to 2.2% from 3.0% in the final quarter of 2011. Business investment was weak for the first time in over two years and government spending was a drag due to decreased military spending as well as state and local budget cuts. On the bright side, consumer spending accelerated to the strongest rate of growth since late 2010 and housing investment rose by 19.1%.
The overall theme in April was one of slowing growth and rising tensions in Europe. The labor market cooled with reduced job gains and higher jobless claims. Consumer spending also slowed from stronger levels earlier in the year. The ECBâ€™s Long-Term Refinancing Operation (the LTRO), which provided over â‚¬1 trillion of loans to European banks, lost steam. As a result, interest rates on Spanish and Italian government debt rose to concerning levels.
Despite challenges, investors were little moved and stock markets eased only modestly in April. Relatively robust earnings releases during the period, a surprise to many, certainly helped. Investors, with a â€œbad is goodâ€ mindset, also took solace in the belief that further economic weakness will spur monetary stimulus by the Federal Reserve.
A number of near-term uncertainties will be on investorsâ€™ minds in coming days. Europeans are increasingly concerned about the failure of austerity measures to bring about confidence and stability. The degree of unrest, evident in the recent fall of the Dutch government, will be further illustrated by the outcome of May 6 elections in Greece and France. A successful challenge to the austeritypromoting leadership of these countries may send a strong message that Europeâ€™s austerity solution needs modification. An additional message has been and will be sent by the ratings agencies. Following S&Pâ€™s negative action on 16 Spanish banks at the end of April, Moodyâ€™s is expected to unleash a wave of European bank downgrades in early May.
Aprilâ€™s Economic Releases
The S&P 500 index lost 0.6% for the month and is now up 11.9% for the year. Developed international equity markets, as defined by the MSCI EAFE index, were down 2.0% for the month. The MSCI Emerging Markets index, consolidating from a strong rally this year, gave up 1.2% in April. Year-to-date, international developed and emerging markets returned 8.7% and 12.7%, respectively.
In the fixed income market, the Barclays US Aggregate index gained 1.1% for the month and the yield on the 10-year U.S. Treasury bond fell 28 basis points to end with a yield of 1.95%. The yield spike experienced in March has now completely reversed. For the year, the Barclays U.S. Aggregate has gained 1.4%. Credit spreads remained fairly constant for the month and various sub-sectors such as high yield, international, and municipal bonds performed comparably to the Aggregate index.
The Dow Jones UBS Commodity index lost 0.4% in April while the Dow Jones U.S. Real Estate index rose 2.6%.
This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgagebacked securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.