March Monthly Market Commentary

March brought gains and milestones. The NASDAQ ended the month above 3,000, which it hadn’t done in nearly 12 years. The Dow pulled off its sixth straight monthly advance, and the S&P 500 and Russell 2000 rose as well. Gas prices continued their march upward, but consumer spending did not fall. The real estate sector flashed some negative signals. Investors and economists alike mulled the effect that potentially decelerating economies in Europe and Asia might have on Wall Street. The U.S. economy, on the other hand, seemed to show further improvement.1

Gas prices were putting the clamps on the consumer, right? Wrong. It seemed consumer spending was rising, perhaps partly in response to increased fuel costs. In fact, the Commerce Department said personal spending rose 0.8% in February (the biggest gain in seven months) even as incomes rose just 0.2%. As for that other really important statistic affecting consumers, the nation’s jobless rate had remained at 8.3% for February, although job growth was impressive once again (227,000 positions added to non-farm payrolls).2,3

Consumer sentiment was the proverbial mixed bag. The Conference Board’s survey slipped from February’s revised mark of 71.6 to 70.2. The University of Michigan’s final March survey came in at 76.2, up from the 74.3 reading of late February.4

Consumer prices moved in a pronounced direction – and that direction was up. The federal government’s Consumer Price Index rose 0.4% in February, the biggest monthly gain since April. Producer prices matched that increase. Annualized CPI was running at 2.9%, annualized core CPI at 2.2%. What role did gasoline costs play in all this? A major one. A 6% February rise in retail gas prices represented a significant portion of the advance in the overall CPI. Pump prices have climbed close to 20% since December, and a gallon of unleaded cost $3.93 at the end of the month, up 2o cents from the end of February. Even with this price pressure on consumers, the Census Bureau said retail sales were 1.1% better in February. It also revised January’s gain up to 0.6%. Durable goods orders also rose 2.2% in February.4,5,6,7

The U.S. manufacturing and service sectors were holding up well. The Institute for Supply Management’s March manufacturing PMI rose a full percentage point to 53.4, and its non-manufacturing index read 57.3 in February, an 0.5% gain.8,9

The Federal Reserve conducted its annual stress test of 19 big banks in March, and 15 lenders held up under the “doomsday” scenario (Dow losing half of its value, home prices at 1996 levels, a 13% jobless rate). American Express, Bank of America, Bank of New York Mellon, BB&T, CapitalOne, Fifth Third, Goldman Sachs, JP Morgan Chase, Keycorp, Morgan Stanley, PNC, Regions, State Street, U.S. Bancorp and Wells Fargo each got a thumbs-up. The Fed felt that Citigroup, SunTrust, Ally and MetLife would lose enough assets under the scenario to pose systemic risk.10

To what degree would the Eurozone economy slow down? Would Asian economies turn around their manufacturing bases? Looking to Europe, the signs were bleak. The Eurozone jobless rate ticked up to a post-euro high of 10.8% in March. In Spain, the unemployment rate was 23.6%; in France, it was 10.0%; in Italy, it was 9.3%; in Germany, it was just 5.7%. The key Markit purchasing managers index was below 50 for the eighth consecutive month in March, with analysts growing increasingly certain that the EU had slid into a recession.11

As for the key economies of the Asia-Pacific region, factory output was looking better. For March, official PMIs were in reasonably good shape in China (53.1, best since last April), India (54.7), and South Korea (52.0, a one-year high). India’s inflation rate accelerated in March for the first time since October.12

Many major stock indices pulled back last month. That was not the case for the Nikkei 225, off to a roaring start in 2012 (+19.26% for Q1). The Japanese benchmark rose 3.71% last month. Germany’s DAX was up 1.30% in March and Australia’s All Ordinaries rose 0.73%. Several major indices retreated: the CAC 40 lost 0.83%, the FTSE 100 1.76%, the TSX Composite 2.41%, the Sensex 3.91%, the Hang Seng 5.57% and the Shanghai Composite 6.82%. Despite these losses, all of the above indices posted gains for the quarter. The MSCI World Index rose 1.02% in March and 10.94% for Q1 in USD terms. By the same measuring stick, the MSCI Emerging Markets Index fell 3.52% in March but rose 13.65% for the quarter.13,14

The hottest marquee commodity of March was (guess what) retail gasoline at +5.20%. Cotton went +3.85% last month. Most other key commodities lost their footing – most notably, natural gas. Those futures slid 18.73% in March, a descent helped by unseasonably warm weather. Oil futures lost 3.78% last month, settling at $103.02 per barrel on the NYMEX; for the quarter, prices rose 4.24%. Gold slipped 2.30% on the COMEX on the month and rose 6.71% on the quarter to wrap March at $1,671.90 on the COMEX. Copper (-1.40%) and silver (-6.23%) retreated after two strong monthly advances. RBOB gasoline futures rose 1.56% in March and the U.S. Dollar Index pulled off its first monthly gain for 2012 (+0.44%). Elsewhere, coffee futures sank 8.98%, corn lost 2.13% and wheat lost 1.09% for the month.6

March didn’t bring much improvement. Interest rates on conventional mortgages did go back under 4% after topping that mark at mid-month. Looking at Freddie Mac’s March 1 and March 29 Primary Mortgage Market Surveys, we see that mortgage interest rates did increase last month: 30-year FRMs went from 3.90% to 3.99%; 15-year FRMs went from 3.17% to 3.23%; 5/1-year ARMs rose from 2.83% to 2.90%; 1-year ARMs went from 2.72% to 2.78%.15

Existing home sales fell 0.9% for the month, while new home sales pulled back 1.6%. Year-over-year, the pace of residential resales had increased 8.8% while new home buying rose 11.4%. The Census Bureau announced that the median new home sale price had risen 6.2% in a year to $233,700. The National Association of Realtors noted the first year-over-year increase in existing home prices since November 2010.   However, the January edition of the S&P/Case-Shiller Home Price Index revealed that existing home prices had essentially reset to early 2003 levels. The index posted its fifth straight monthly retreat and was down 3.8% from 12 months before. The NAR also reported a 0.5% decline in pending home sales for February.16,17,18

Fear seemed to take a holiday: the CBOE VIX was at 15.50 on March 30 after diving 15.90% for the month. The Dow ended March at 13,212.04, the S&P at 1,408.47, the NASDAQ at 3,091.57 and the Russell 2000 at 830.30.1

It would be mind-blowing if the market put together consecutive quarters like this, and even the most bullish of analysts don’t expect a repeat. Then again, Wall Street has surprised us many times. Some analysts think the current bull market may be due to run out of steam given the apparent economic sluggishness in Europe and the tendency of investors to “sell in May, go away”. Others think that since the S&P 500 fell 19.4% in October 2011 from an April 2011 peak (actually more than 20%, if you factor in intraday numbers rather than just the market close), we are actually more or less in a new bull market that began last fall. So would that be a baby bull within a secular bear, or something more lasting? Whether you think the glass is half full or half empty on Wall Street, the fact remains that stocks surpassed expectations in the first quarter of the year – and April may bring further gains.23

UPCOMING ECONOMIC RELEASES: Here is the slate of releases for the rest of April: the March ISM service sector index (4/4), the March unemployment report (4/6), February wholesale inventories (4/10), a new Federal Reserve Beige Book (4/11), the March PPI (4/12), the March CPI and the initial University of Michigan consumer sentiment survey for April (4/13), March retail sales and February business inventories (4/16), March industrial output, housing starts and building permits (4/17), the March Conference Board Leading Economic Indicators index and March existing home sales (4/19), March new home sales, the February Case-Shiller home price index and the Conference Board’s April consumer confidence poll (4/24), March durable goods orders and an FOMC policy announcement (4/25), March pending home sales (4/26), the federal government’s first estimate of Q1 GDP and the final April University of Michigan consumer sentiment survey (4/27), and finally the March consumer spending numbers (4/30).

“Humor is just another defense against the universe.”
 – Mel Brooks

To Your Prosperity,

Kevin Kroskey

This article prepared in conjunction with Peter Montoya.
1 - [2/29/12]
2 - [3/30/12]
3 - [3/9/12]
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5 - [3/16/12]
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8 - [4/2/12]
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22 - [1/9/02]
23 - [3/7/12]

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Any future blog posts will be done at . Thank you, Kevin Kroskey, CFP, MBA