Member/Community News

THE ECONOMY The first quarter was welcome relief for investors, but as markets climb higher, questions inevitably arise about the sustainability of the rally. Though growth is slowing in much of the emerging world and the Eurozone’s periphery, the recovery in the U.S. appears to be on increasingly solid footing, which may help support asset prices. Risks clearly remain, but overall, the optimism of the first quarter appears to be warranted. U.S. companies are sitting on roughly $2 trillion in cash. Inflation remains well within the Fed’s “comfort zone.” The Fed anticipates exceptionally low short rates beyond 2013. The private sector has added 1.2 million jobs over the past six months. Leading indicators for job creation are positive, including the average work week in the manufacturing sector recently hitting a record high. The global credit taps are open. In China and India, central banks continue their attempt to manage a soft landing for their slowing economies. Despite the progress and U.S. consumers’ remarkable resilience, public sentiment still reflects disappointment with the overall rate of economic improvement. With U.S. households on average still reducing their debts rather than accelerating their borrowing, as we typically have after recessions, growth has been frustratingly slow. Congress risks taking the nation over a self-imposed “massive fiscal cliff” by year end. A compromise that balances some tax hikes with some spending cuts is likely in the offing. Election year animosity and rising prices are also intensifying the general gloom. In addition, European policymakers continue to buy time for fiscal adjustments and bank earnings to strengthen balance sheets, but ending the crisis depends on finding political resolutions that will not be forthcoming in 2012. Without denying that the markets and the economy face serious issues, investors are cautiously focusing on improving trends, with the hope of being able to see opportunity through that gloom. THE CAPITAL MARKETS U.S. stocks continued to rally in the first quarter, as domestic growth prospects improved, and the most severe risks associated with the European sovereign debt crisis began to abate. The DJIA and S&P500; were up 8.8% and 12.6% for the quarter, while the NASDAQ was up 18.7%. Developed international markets rose in the first quarter, buoyed by better U.S. economic performance and moderating fears related to the Eurozone crisis. Emerging markets outperformed those of the developed markets as investors grew more willing to take on risk. The MSCI EAFE (developed markets) and MSCI Emerging Markets indices rose 10.0% and 13.7% for the quarter. Oil and gold prices were up for the quarter, as well as REITS. The Goldman Sachs Natural Resources index rose 4.2%, while the DJ U.S. Select REIT index gained 10.8% for the quarter. The dollar weakened as fears over the Eurozone debt crisis abated somewhat. Meanwhile the fixed income markets enjoyed positive returns, with high yield bonds and senior loans outperforming treasuries. The Barclays Capital U.S. Aggregate Bond Index rose o.3% for the quarter. As we progress into 2012, the big question remains whether U.S. equities can continue to advance given that it may take several quarters (or even several years) to settle the Eurozone’s sovereign debt crisis. 215 491-4346 for financial advice,questions ,or review