A Strong First Quarter for the Stock Market

Stocks continued 2010 trends having their best 1^st quarter in 12 years as the US stock market rose 6%.  Our client portfolios were perfectly positioned with the proper mix of cash, bonds, US and International equities.  For the typical investor, quarterly results included:

• Fixed Income/Bonds: We have continued to underweight this category due to concerns over rising interest rates which could hurt bonds.  Intermediate-term, investment-grade bonds returned a paltry 0.9% for the quarter.
• US Equities: We have been adding to US stocks as corporate earnings continue to be impressive.  The DJIA and S&P 500 were up 6.4% and 5.4% respectively.
• Foreign Equities: Due to war and political instability in the Middle East, the earthquake/nuclear problems in Japan, and ongoing financial instability in Europe, we have not been adding money here as foreign stocks grew 3%.
• Cash: We continue to hold a bit more cash than usual for liquidity and buying opportunities on down days in the markets.

Despite ongoing concerns about the health of the consumer and robustness of the recovery, the evidence continues to show momentum towards improvement.

• New claims for unemployment benefits continue a downward trend.  The pace is slow but the trends confirm slight increases in hiring and falling new claims.
• A recent survey of chief executives shows higher sentiment towards growth, expansion and hiring in the coming year.
• Corporate profits are expected to continue to grow at a healthy rate although at a slower rate than last year.

Finally, the economy has shown an affirming resiliency.  Despite the collapse of the Portugese government, ongoing European debt concerns, governments toppling in the Middle East and North Africa, a crippling of the 3^rd largest economy in the world (Japan) plus ongoing nuclear radiation concerns, US stock markets bounced 5% off the mid-March lows.

As the economy continues to slowly improve, the consumer has not shared in the recent market exuberance.  Corporate profits have occurred despite the ongoing problems of consumers.  Can the profit outlook continue?  What is the fate of the consumer if hiring doesn’t pick up?  Read more about this disconnect at my blog: chris-rhim.blogspot.com

As always, please contact me at (301) 655-4970 should you have any questions or concerns.

Chris

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