Sunday, April 1, 2012

U.S. Stocks Record Best 1st Quarter in 14 Years

U.S. markets ended the quarter on a positive note on Friday. Data showed U.S. consumer spending rose by the most in seven months, while consumer confidence in March reached its highest level in 12 months. On Friday, the S&P 500 rose 5.19 points or 0.37% to 1,408.47. The Dow climbed 66.22 points or 0.50% to 13,212.04.

For the first quarter, the S&P 500 rose 12%, while the Dow gained 8%. It was the best first quarter since 1998 and the best quarter overall since 2009.

Consumer Spending and Consumer Confidence Both Rise

U.S. February consumer spending rose 0.8% from January, higher than the 0.6% increase that the market expected. Meanwhile, the Reuters/University Michigan survey showed consumer confidence in March increased to 76.2, an increase of 0.9%.

Initial Jobless Claims Encouraging

On Thursday, weekly initial jobless claims fell 5,000 from last week to 359,000. It was the lowest level since April 2008, and was another week the figure has remained under the critical 400,000 level.

Housing Market Still Weak

On Tuesday, the S&P/Case-Shiller index fell for the 9th month in a row, to its lowest level since 2003. However, many market watchers believe the housing market is nearing its bottom.

Ben Bernanke Hints at More Easing

On Monday, while attending a forum, Federal Reserve Chairman Ben Bernanke said that despite the improving job market, much of the improvement has been from companies decreasing the number of people they are cutting, rather than increase in hiring. Thus, the job market has not been keeping up with the improvement in the economy. Analysts believe that Bernanke's statements indicate a possibility that he would conduct further quantitative easing.

Looking Ahead to Next Week

After a very strong first quarter for stocks, markets are experiencing a pause in the rally. Investors will focus next week on the March nonfarm payrolls number. In the subsequent week, the direction of the markets will likely be determined by the earnings season. Investors will likely look at company guidance for effects of Europe's entry into a recession and slowing growth in China on US corporate earnings.

With strong gains in the first quarter, further gains would only materialize if there are strong results during earnings season. In addition, the high price of oil (Brent at $122.88/barrel while WTI at $103.02/barrel on Friday) will likely limit gains in the coming week.

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