STOCK MARKET RALLY CONTINUED
The stock market followed 2009's powerful rally with a strong performance in the first quarter. The S&P 500 rose 4.9%, excluding dividends, which was its best first-quarter percentage gain since the heady days of 1998, according to MarketWatch. Strong corporate earnings, solid corporate balance sheets, and upbeat manufacturing data helped support the stock market's bullish results, according to The Wall Street Journal.
INTEREST RATES WERE STABLE
The yield on the 10-year Treasury was essentially unchanged during the quarter as investors continued to snap up all the debt the government offered, according to The Wall Street Journal. Demand for corporate and high-yield bonds was robust which helped keep those rates at relatively low levels.
Some investors are concerned that our large budget deficits may result in a glut of bonds, which could cause interest rates to rise substantially. That could put the brakes on an economic recovery, but this worry has not come to fruition--yet.
THE DOLLAR ROSE AGAINST THE EURO
The big story in foreign currencies during the first quarter was the strength of the dollar against the euro. According to The Wall Street Journal, the dollar rose 6% against the euro as debt concerns in Greece, Portugal, and Spain weighed on the common currency. Investors are also evaluating the relative strength of the U.S. economy versus the euro countries and it appears that a consensus is building that our country may grow faster. If that occurs, it may mean interest rates could rise sooner in the U.S., which would also help support a strengthening dollar.
DOUBLE DIP RECESSION LOOKING LESS LIKELY
Recent economic indicators suggest the economy is healing from the severe recession of 2008-2009. For example, the Commerce Department said consumer spending rose in February for the fifth consecutive month. Consumer spending makes up about 70% of gross domestic product, according to Morningstar, so a rise in this number bodes well for the economy. The manufacturing sector is looking robust, too, as the ISM manufacturing diffusion index rose to 59.6% in March, which was its highest level since July 2004, according to MarketWatch. Readings over 50% indicate that more firms said business was improving than said it was worsening. It was also the eighth straight monthly increase.
The stock market performed well in the first quarter as earnings growth continued to shine and the economy continued to mend. Longer-term issues such as large government deficits, housing weakness, and the withdrawal of stimulus money hang over the markets like a black cloud, but so far, these concerns have not deterred investors.
Weekly Focus – Think About It
"Economic progress, in capitalist society, means turmoil."
-- Joseph A. Schumpeter