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Market Digest – Week Ending 5/4

The S&P 500 fell 2.4 percent — the largest weekly decline of the year. A weaker-than-expected jobs report released Friday drove most of the selling. Payrolls climbed by 115,000, well below estimates. The unemployment rate dropped to 8.1 percent, but the decline was largely due to people leaving the labor force. Economic news out of Europe also caused concern, with Spain officially entering recession. Treasuries rose as investors sought safer assets and moved away from Euros. Oil fell below $100 per barrel for the first time since February.

Weekly Returns

S&P 500: 1,369 (-2.4%)

MSCI EAFE: (-2.9%)

U.S. 10-Year Treasury Yield: 1.88% (-0.05%)

Gold: $1,642 (-1.2%)

USD/EUR: $1.309 (-1.1%)

Major Events

  • Monday – Spain’s GDP contracted 0.3 percent in the first quarter.
  • Thursday – The Institute for Supply Management said the non-manufacturing index fell to a four-month low of 53.5 in April.
  • Thursday – Facebook announced it would target a May 18 IPO with a $25 to $35 share price range. The upper end would give the company a valuation just shy of $100 billion.
  • Friday – U.S. jobs growth in April was reported at 115,000, below expectations. The report created fear that the economic recovery is fading.

Our Take

Most of this week’s market decline came on the heels of the U.S. jobs report. It was bad, but not awful. Government jobs declined by 15,000, while the private sector number increased by 130,000. One slow month does not break the more positive longer-term trend.

News out of Europe continues to be bad. The continent appears headed into recession, but this will not be a surprise to anyone. Now that it is happening, however, there are political implications. Four elections this weekend could have a significant impact on how Europe handles its crisis. France will likely install a Socialist president for the first time since 1981, while in Germany Angela Merkel is in danger of losing mostly symbolic support. Greece may have trouble forming a government at all. The result right now is increased uncertainty. We would like to see European governments get a handle on spending, but it is possible the tide shifted too far toward austerity in the face of a recession. The right amount of sway in the other direction may prove just about right.

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