April 08, 2013 - Rally Softens; But That May Be Healthy

| April 08, 2013
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Markets pulled back last week as investors reacted to several disappointing economic reports and expressed concern that a spring swoon is around the corner. For the week, the S&P 500 lost 1.0%, the Dow trimmed 0.1%, and the Nasdaq fell 1.9%.[i] 

The big news last week was Friday’s job report, which showed a drop in the overall unemployment rate from 7.7% in February to 7.6% in March. However, much of the drop can be attributed to discouraged job seekers who stopped looking for work rather than organic job creation. Unfortunately, the economy only added a disappointing 88,000 new jobs in March, about half the number economists were expecting.[ii] Earlier in the week, payroll processor ADP released a report showing that private employers added just 158,000 jobs in March, missing expectations of 200,000 new jobs.[iii] Despite the poor data, it’s usually unwise to read too much into a single report, since monthly job data is notoriously volatile.

In Washington, President Obama announced his intention to offer cuts to Social Security benefits and other government programs as a concession to Congressional Republicans, though no plan is final. While the White House's proposal could help to cut the federal deficit by $1.8 trillion over the next decade, it definitely has some drawbacks.[iv] All political affiliations aside, cuts to any programs are bound to be painful, but may also be necessary to get U.S. spending back on track. All this back-and-forth we are seeing is a sobering reminder of how much work still needs to be done to get the nation’s fiscal house in order; there is still a long road ahead.

Looking forward, investors will be watching first quarter earnings reports (which will start trickling in this week) and economic data to get a sense of how the economy is doing. Should initial earnings reports show weakness, stocks could experience further downside, though short-term consolidations are a common occurrence of healthy markets, and should not be viewed as a cause for alarm.

ECONOMIC CALENDAR:
Wednesday: EIA Petroleum Status Report, FOMC Minutes, Treasury Budget
Thursday: Jobless Claims, Import and Export Prices
Friday: Producer Price Index, Retail Sales, Consumer Sentiment, Business Inventories

 


Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. 

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. 

The Nasdaq is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stocks



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