Weekly Market Commentary

Another positive week for the major indices as the first quarter comes to a close. The markets were closed Friday for the Easter holiday, so as of Thursday, the Dow closed up 0.71%, the S&P 500 gained 0.99%, and the Nasdaq rose 0.31%. For the year-to-date, the Dow gained 4.8%, the S&P is up 5.7%, and the Nasdaq has risen 5.9%.

Source: MSN Moneycentral

Several economic reports released this week showed continued growth in the U.S. economy. The big story came on Friday, as the unemployment report showed significant gains in employment. In March, the U.S. economy gained 162,000 jobs and the unemployment rate remained unchanged at 9.7%. This number is less than the 190,000 economists anticipated, but remains a very positive report. Despite the additional jobs gained, the unemployment rate remains unchanged due to an increase in the labor force, another good sign. There was a worry that Census hiring would be the bulk of the gains, but these temporary workers only added about 50,000 jobs (nearly 1 million Census workers are expected to be hired over time). All-in-all, we are happy with this report.

A surprising news story that caught our attention came from the Obama Administration. In a week where oil closed above $85 per barrel, the Obama Admin announced much of the East Coast and Gulf of Mexico would be open for oil exploration. They correctly indicated that oil will play an important role in the foreseeable future and it can be drilled safely and cleanly off our coast. This is a reversal of his previous stance and we hope he truly means it. Our concern is that this announcement is purely political and may be part of a broader agenda for which he is seeking favor. We have to wonder why areas on the East Coast have been opened, but the Pacific Coast and parts of Alaska have been firmly shut. Only time will tell, but we hope this is a sign of the promised post-partisanship we have yet to see. A rising gas price will choke off this recovery and drilling in America would certainly be beneficial.

The upcoming week looks quiet in terms of economic reports; however, there are several items we will be watching. The futures market reacted favorably to the unemployment report on Friday, so we will be watching how the stock market behaves on Monday after investors had the weekend to digest the report. All indications point to a higher market, but nothing is ever certain when it comes to the stock market.

The mortgage market will also be in focus this week. Last week, the Fed ended its purchases of mortgage-backed securities which kept rates low in an effort to entice new home sales. We will be watching how the market reacts to this event over the next several days, though we have already seen a slight drop in activity, leading to higher yields. We are happy to see the free market take over here, but it may result in higher mortgage rates that cause a drop in home sales and a potential setback in the economic recovery.

Where are we investing now?

As the employment picture becomes brighter, we remain encouraged. The market has risen sharply the past couple weeks and we would not be surprised to see a pull-back in the near term. At any rate, we remain optimistic in the short term, but cautious. As we have said in past reports, the easy money and stimulative measures currently in place will help the markets higher. Higher interest rates, higher taxes, increasing government involvement in the private sector, and a still-high unemployment rate have us worried for the longer term.

In equities, we are focusing on higher-quality and multi-national stocks. We are still bullish (optimistic) on commodities and believe that government policies will weaken the dollar in the long term. TIPs continue to be a favorite, as we expect inflation to increase in the future, despite being tame at the moment. U.S. treasuries are a sector we are very bearish (pessimistic) on. Finally, we are optimistic about international stocks, as emerging markets (excluding China) are areas we favor.