THE QUARTER IN BRIEF
Dow, +8.14%. S&P 500, +12.00%. NASDAQ, +18.67%. These numbers resemble a good year on Wall Street �” and these were simply the advances from the first quarter. While stocks may or may not climb higher for the rest of the year, investors could certainly cheer the opening quarter of 2012 – the best quarter for U.S. equities in nearly 14 years. Q1 2012 was also notable for an ascent in oil futures and retail gas prices, resilience in consumer spending and the service and manufacturing sectors, and lingering ambiguity over the real estate market. The debt issues and apparent recession in Europe, the concerns over factory output worldwide, the uninspiring earnings season stateside �” these concerns seemed to matter less this quarter as investors grew more optimistic.1
DOMESTIC ECONOMIC HEALTH
America was seeing job growth. The unemployment rate dipped 0.2% to 8.3% in January and stayed there in February �” and 8.3% was the lowest jobless rate since February 2009. Non-farm payrolls swelled by 227,000 positions in February �” the third month in a row with net job gains of more than 200,000 �” and economists polled by Reuters think that the March report will show 203,000 new jobs in the economy. Four months in a row with 200,000 in net job gains? If it happens, that will be a factoid unmatched since 1999.2,3
Consumer inflation rose 0.2% in January and 0.4% in February. By February, annualized inflation was running at 2.9% with annualized core CPI at 2.2%. Producer prices were up 0.1% for January, 0.4% in February and 3.3% annually in February (the smallest 12-month increase since August 2010). Fuel costs played a big role in all this.4,5
As pump prices climbed higher, consumer spending increased. Commerce Department data showed personal spending advancing 0.8% in February, with the January gain revised up to 0.4%. By February, the personal savings rate was down to 3.7%, the lowest since August 2009. Consumer confidence also rose in the quarter, with the final March University of Michigan survey coming in at 76.2 (a 12-month peak) and the Conference Board’s March consumer confidence index at 70.2 (down 1.4 points from February).6,7
The Institute for Supply Management’s manufacturing and non-manufacturing indices both stayed above 50. ISM’s manufacturing gauge came in at 52.4 in February and 53.4 in March; its service sector index was at 56.8 in January and 57.3 in February. Federal government figures showed that durable goods orders were up 1.3% in February after falling 1.1% in January. Speaking of hard goods, Chrysler and General Motors reported U.S. sales respectively up 34% and 12% in March, while Ford recorded its best March sales since 2007.8,9,10
For once, Capitol Hill was a relatively quiet place. The big economic news item was the introduction of President Obama’s 2013 federal budget proposal, which formally presented some of the ideas he (and his advisors) had talked about for months �” a “Buffett Rule” that would set income taxes at 30% for Americans making more than $1 million annually, increasing the top two tax brackets to 36% and 39.6%, limiting itemized deductions for those falling into those tax brackets, taxing dividends asordinary income, hiking capital gains taxes to 20% for all taxpayers except those in the 10% and 15% tax brackets, and resetting the estate tax to 45% while keeping the personal exemption at the current $3.5 million.11
GLOBAL ECONOMIC HEALTH
Eurozone finance ministers arranged a third (and presumably final) rescue package of €237 billion for Greece in February �” €107 billion in haircuts to Greece’s bond investors plus €130 billion in loans to its government. Moreover, two cash infusions by the European Central Bank to the EU’s commercial banks �” one in December, another in March �” aided the global stock rally seen in the first quarter. So on and off the continent, there were sighs of relief. Yet economists were in agreement as the quarter ended: the Eurozone seemed to be tipping into a recession or was already within one. The EU jobless rate was 10.8% in March (Germany, the EU’s prime economy, was faring better with only 5.7% unemployment). The EU’s Markit PMI was below 50 for the eighth straight month in March. 12,13,14
Were Asian economies slowing down? In March, the Chinese government lowered its GDP target for the first time since 2005, projecting 7.5% growth this year as opposed to 2011’s 8.0% target. China’s actual GDP was 8.9% in 4Q 2011 (the smallest in ten quarters), and its inflation rate had reduced to 4.5% from the 37-month high of 6.5% set last July. As for manufacturing, key PMIs were above 50 as the quarter ended: 53.1 in China, 54.7 in India and 52.0 in South Korea.15,16
WORLD MARKETSWatch movie online The Transporter Refueled (2015)
What was the world’s best-performing major index in Q1 2012? Would you believe the Nikkei 225? The Japanese benchmark rose 19.3% for the quarter, according to the Wall Street Journal. Other benchmarks rising in double digits for Q1 2012: Bovespa, 13.7%; RTSI, 18.5%; DAX, 17.8%; KSE 100, 21.3%; PSE Composite, 16.8%; Sensex, 12.6%; Hang Seng, 11.5%; Dow Jones Global Indexes, 11.5%. Other gains from the quarter: Australian All Ordinaries, 7.5%; TSX Composite, 3.7%; Shanghai Composite, 2.9%; CAC 40, 8.4%; FTSE 100, 3.5%. The MSCI World Index rose 10.9% on the quarter; its sibling, the MSCI Emerging Markets index, climbed 13.7%.17,18
COMMODITIES MARKETS
On the whole, Q1 2012 was quite good for the broad commodities sector. Gold went +6.7%, silver +16.4%, platinum +17.0%, and copper +11.3%. Palladium actually pulled back a bit, losing 0.3% for the quarter. Gold ended the quarter at $1,671.90 on the COMEX. NYMEX crude advanced 4.2% last quarter, which paled compared to the Q1 gains for heating oil (8.9%), RBOB gasoline (24.5%) and retail gasoline (19.8%). Natural gas futures dropped 28.9% with the warmer winter. Oil ended the quarter at $103.02 a barrel, unleaded gasoline at $3.93 a gallon. As for headline crops, wheat went +1.2%, cotton +2.4%, corn -0.4% and coffee -19.4% in the first three months of 2012. The U.S. Dollar Index (though it strengthened in March) lost 1.7% for the quarter.19,20
REAL ESTATE
Was the market improving? Or at least ready for a turnaround? Optimists could take heart in some compelling statistics. By February, existing home sales were up 8.8% year-over-year and 13% improved from July, according to the National Association of Realtors. NAR also found that the sales pace in January was the strongest since May 2010, and home prices rose for the first time in four months in February. The Commerce Department noted that February’s new home sales were up 11.4% from 12 months ago; February also brought the greatest number of requests for building permits since October 2008. By February, NAR had pending home sales 9.2% improved from a year prior. However, the January S&P/Case-Shiller Home Price Index (which came out last month) showed that home prices had fallen 3.8% year-over-year, with prices essentially resetting to early 2003 levels.21,22,23,24
Across the quarter, there was really very little change in mortgage interest rates. Comparing Freddie Mac’s Primary Mortgage Market Surveys of December 29 and March 29, we see mortgage interest rates moving like so: 30-year FRMs, 3.95% to 3.99%; 15-year FRMs, 3.24% to 3.23%; 5-year ARMs, 2.88% to 2.90%. Interest rates on 1-year ARMs were averaging 2.78% in both snapshots.25,26
LOOKING BACK…LOOKING FORWARD
Climbing above 3,000 for the first time since the dot-com boom, the NASDAQ had its best quarter since 1991. The Dow ended the first quarter by advancing for a sixth straight month. The Russell 2000 gained 12.06% for the quarter and the CBOE VIX (the “fear index”) fell 33.76%.1
So how much of these gains can stocks hold? It may be that the momentum generated by the market in the first quarter persists -appetite for riskier assets has increased worldwide along with investor optimism, and it may not be easily or readily doused. Then again, the data stream from the U.S. is really encouraging for foreign investors at a time when indicators from their regions are underwhelming. Spain and Portugal are still question marks in the Eurozone, even after the two sizable cash injections into the European banking system by the ECB and March’s hike in the region’s bailout fund reserve to €700 billion. So fingers are crossed that the U.S. bull market can weather a potential Iberian debt debacle come spring and summer.1
These views are those of Conrad Capital Management, Inc. They are not the views of Representative’s Broker/Dealer, and should not be construed as investment advice. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions �” the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The Hang Seng Index is a free-float capitalization-weighted index of selection of companies from the Stock Exchange of Hong Kong. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the Australian equities market. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The Dow Jones-UBS Commodity Index DJ-UBSCI is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. It currently has 19 commodity futures in seven sectors. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
Conrad Capital Management, Inc.
1377 Motor Parkway, Suite 406
Islandia, NY 11749
Phone: (631) 439-7878
Fax: (631) 439-7879
www.conradcapital.com
Citations.
1 – cnbc.com/id/46903719 [3/30/12]
2 – www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [3/9/12]
3 – www.reuters.com/article/2012/04/03/us-usa-economy-jobs-idUSBRE83212A20120403 [4/3/12]
4 – bls.gov/news.release/pdf/cpi.pdf [3/16/12]
5 – bls.gov/news.release/pdf/ppi.pdf [3/15/12]
6 – www.nytimes.com/2012/03/31/business/economy/consumer-spending-rises.html [3/31/12]
7 – www.conference-board.org/data/consumerconfidence.cfm [3/27/12]
8 – www.ism.ws/ISMReport/MfgROB.cfm [4/2/12]
9 – www.ism.ws/ISMReport/NonMfgROB.cfm [3/5/12]
10 – www.latimes.com/business/money/la-fi-mo-factory-orders-20120403,0,5874175.story [4/3/12]
11 – www.bankrate.com/finance/news/obama-2013-budget-takes-aim-at-wealthy.aspx [2/13/12]
12 – www.channelnewsasia.com/stories/afp_world_business/view/1186463/1/.html [3/2/12]
13 – www.businessday.co.za/articles/Content.aspx?id=168912 [4/3/12]
14 – www.bbc.co.uk/news/business-17582051 [4/2/12]
15 – www.reuters.com/article/2012/04/02/us-global-economy-asia-idUSBRE83104P20120402 [4/2/12]
16 – business-standard.com/india/news/china-gdp-target-at-75-lowered-first-time-in-7-yrs/159505/on [3/5/12]
17 – online.wsj.com/mdc/public/page/2_3022-intlstkidx.html [3/30/12]
18 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [3/30/12]
19 – money.msn.com/market-news/post.aspx?post=087cac64-3d67-4737-b94a-31c3ff49ba16 [3/30/12]
20 – bullionpricestoday.com/bullion-prices-mixed-in-first-quarter-2012/ [3/31/12]
21 – www.usatoday.com/money/economy/housing/story/2012-03-21/existing-home-sales-february/53682350/1 [3/21/12]
22 – www.csmonitor.com/Business/Paper-Economy/2012/0326/Pending-home-sales-slightly-down-in-February-but-up-since-2011 [3/26/12]
23 – www.kansascity.com/2012/03/27/3518641/case-shiller-home-price-index.html [3/27/12]
24 – montoyaregistry.com/Financial-Market.aspx?financial-market=common-financial-mistakes-and-how-to-avoid-them&category=29 [10/5/12]
25 – www.freddiemac.com/pmms/ [4/3/12]
26 – www.freddiemac.com/pmms/index.html?year=2011 [4/3/12]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F30%2F11&x=0&y=0 [3/30/12]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F30%2F11&x=0&y=0 [3/30/12]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F30%2F11&x=0&y=0 [3/30/12]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=3%2F28%2F02&x=0&y=0 [3/30/12]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=3%2F28%2F02&x=0&y=0 [3/30/12]
27 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F28%2F02&x=0&y=0 [3/30/12]
28 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [3/30/12]
28 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [3/30/12]
29 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm10902.pdf [1/9/02]
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situation.
Conrad Capital Management, Inc.
1377 Motor Parkway, Suite 406
Islandia, NY 11749, USA
Tel: (631) 439-7878 Fax: (631) 439-7879
E-mail: info@conradcapital.com
Important Consumer Disclosures:
Conrad Capital Management, Inc. is a an Independent Registered Investment Advisor with headquarters located in
Islandia, New York