Market Digest — Week Ending 3/30

in Market Commentary by

[dropcap]F[/dropcap]riday provided a positive finish to a good week and a great quarter for stocks. Most major global equity indexes gained more than 10 percent for the quarter as fear over the European debt crisis subsided. Gold and energy also gained. Treasuries declined during the quarter as investors sought higher returns.

Weekly Returns

S&P 500: 1,408 (+0.8%)

MSCI EAFE: +0.2%

U.S. 10-Year Treasury Yield: 2.21% (-0.08%)

Gold: $1,667 (+0.4%)

USD/EUR: $1.334 (+1.3%)

Major Events

  • Monday – Bernanke said in a speech that accommodative monetary policy is still needed. Stocks surged.
  • Monday – Merkel suggested a temporary bailout fund that would lift the euro zone’s total bailout capacity to 700 billion Euros, short of the one trillion Euros suggested by the European Commission.
  • Tuesday – Supreme Court justices sharply challenged Obama’s health care overhaul, suggesting the policy could be struck down.
  • Tuesday – January’s Case-Shiller housing numbers showed a 3.8 percent drop from a year ago. Many viewed the report as evidence the housing market is on the mend, although skeptics remain.
  • Thursday – Revised Q4 GDP was unchanged at 3 percent, below some estimates.

Our Take

The first quarter was the best performance to start the year for the S&P 500 since 1998. Then again, so was the first quarter of 2011. And so was the first quarter of 2010. The lesson? One shouldn’t get too excited over a single quarter. Still, a lot of positive things happened in the last three months. Here are some of the bigger ones:

  • The European debt crisis stabilized. While far from over, European governments have successfully bought the time needed to get their budgets under control. This will be difficult, and may never happen, but there is a ray of hope. Italy and Spain are not in as bad a shape as Greece.
  • Greece essentially defaulted, and the world didn’t end. This proves contagion is a possibility, not a certainty. Credit default swaps were triggered, boosting confidence in the instruments and avoiding a potential tidal wave of bond selling.
  • The U.S. economic recovery continued forward, albeit slowly and erratically. Unemployment fell faster than most expected. Home prices seem close to finding a bottom.
  • The U.S. presidential election gained clarity. It seems nearly certain Obama will compete against Romney, and will probably win. Neither candidate seems likely to do anything dramatic, which the stock market likes. Probably more importantly, an Obama victory would mean more Bernanke. Whether this is a good thing longer-term is an open debate, but Bernanke’s loose monetary policy should add fuel to stock prices in the mid-term.

Image used under Creative Commons by Flickr user Medill DC.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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