April 23, 2010
2010 First Quarter Market Commentary
Presented below are statistics for the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index.
Dow Jones S&P 500 Nasdaq
Index at 03/31/09 7,608.92 797.87 1,528.59
Index at 12/31/09 10,428.05 1,115.10 2,269.15
Index at 03/31/10 10,856.63 1,169.43 2,397.96
Full year % change 42.69% 46.57% 56.87%
First qtr. % change 4.11% 4.87% 5.68%
The first quarter of 2010 had a strong performance coming off 2009's powerful fourth quarter rally. There was some up and downs throughout the first quarter and the market traded sideways on many days but overall the three major indexes averaged a 4.88% gain for the first quarter. There was not much agreement from analysts on the relative strength of a continued rally but the overall outlook was that positive growth is in the future. As of today's writing the rally has gained strength in April and analysts are increasing forecasts on earnings as the new reports show consumer spending is up through March.
There were some important events in the first quarter of 2010 that caused some concern among investors and instability in the markets. The most significant of those events was Greece's credit crisis. The major concern was Greece's ability to meet its financial obligations to its creditors which was a valid concern. Subsequent to the close of the first quarter European governments have stepped in and offered 30 Billion Euro of aid to Greece. This has helped bolster the overall market as concerns have been assuaged.
Employment rates and real estate continue to be strong negative factors in the market. The unemployment rate held at 9.7% according to the Bureau of Labor Statistics. Foreclosures rose 16% nationwide according to RealtyTrac, Inc. The good news here is that banks are beginning to work with homeowners to work out the loans under such programs as the Making Home Affordable Program. This helps to keep the real estate market from being saturated with vacant homes potentially driving prices further down. RealtyTrac is forecasting more bank seizures and foreclosures in 2010 but see hope of it leveling off in 2011.
Inflation continues to remain flat through the first quarter. 10-year Treasury yields where nearly unchanged during the first quarter. Investors remained hungry for government debt as well as investment grade bonds. This kept the yields relatively low. While the Fed stays committed to keeping interest rates in place at present time, there are indicators that inflation will become a bigger factor than it is at the present moment.
More good news is that analysts are moving away from their predictions of a potential "double dip" in the recovery from the recession of 2008/2009. Much of the economic data is positive with the exception of housing and employment. These concerns will hang over the market for some time but the general consensus among analysts is that we will not see another downturn like we did in 2008/2009. While employment rates remain high, payrolls are increasing at rates in excess of pre-recession figures. Domestic consumer spending and manufacturing rose through March, both of which are good indicators of a robust economy. As of this writing both the Dow and the S&P have exceeded what investors consider to be important hurdles of 11,000 and 1,200 points respectively.
On the global economic front China's manufacturing sector grew for the 13th straight month. European nations have also seen strong factory expansion. This strong global manufacturing growth is in part what bolsters economist's belief that a double-dip recession is becoming less likely. The US dollar strengthened against the euro and the outlook is that will continue. Emerging market returns slowed a little in the first quarter but remained a strong sector for investors willing to assume the additional risk as the recovery continues to take shape.
The service sector, which includes Banks and Financial Services, led the charge in the market gaining 8.4% according to Morningstar Research. The Morningstar Manufacturing Sector was up 5.29% and the Morningstar Information Sector trailed the two with a 2.43% gain. Small cap stocks continued to turn in the highest returns for the first quarter with 9.6% returns in the Morningstar Small Cap Index vs. 4.7% in the Morningstar Large Cap Index.
We will continue to watch the Fed for their plan on interest rate hikes, as well as other indicators to make appropriate strategic adjustments as the data suggests. There is a consensus among analysts that there will be upward pressure on rates which will be a result of supply, the large amounts of stimulus money that will no longer be pouring into the economy and forecasted inflation. We anticipate continued growth of the economy in the second quarter and the majority of economists feel it will continue throughout the year. We temper that confidence with the aforementioned indicators that need to be cautiously watched in the coming year. That being said we do feel optimistic that the economy will continue to enjoy growth.
Please call if you have any questions regarding your Quarterly Statement or if you wish to discuss your investment strategy.
Joseph M. Dowling, CPA Sean M. Dowling, CFP
President Vice President