That rate spike had been all but eliminated by Thursday in
light of equity market weakness and renewed fears of debt
problems in Europe, focused primarily on Spain. But it was
the release of the March jobs report on Friday that drove the
yield all the way down to 2.06 percent, and managed once
again to raise the possibility that another round of
quantitative easing remained on the table, especially given
the Fed's dual mandate to maximize employment consistent with
stable prices and its apparent belief that the recent pace of
improvement in labor markets is likely to slow. Instead of
creating 205,000 new non-farm jobs as had been expected, the
economy added just 120,000. As a result, the three month
average pace of job gains fell from 246,000 to 212,000. And
although that pace is still respectable, it does raise
questions about the sustainability of the early spring pace
of hiring and the distorting effects of unseasonably warm
temperatures across much of the country.
Following the jobs report the dollar softened, reversing a
three day rising trend that came after the release of the
Fed's minutes. And gold firmed after losing three percent of
its value in the previous three trading sessions. Nor was the
suddenly renewed interest in bonds hurt by weakness in equity
markets. Although closed for Good Friday and, therefore,
unable to fully reflect the jobs report until Monday, stocks
had nevertheless been weak enough on Wednesday and Thursday
to result in the worst weekly performance of the new year, as
the S&P 500 closed at 1398, down 0.7 percent. And although
that decline is certainly modest, the index has now been
treading water for the past three weeks since it closed at
1404 on March 16.
Stocks in the Eurozone fared far worse last week, dropping
5.0 percent, and are down by just over 8 percent in the past
three weeks. Spain endured a weak debt auction and saw the
yield on its ten-year note rise 40 basis points from the
prior week's close to 5.74 percent. Just five weeks ago its
yield was 4.85 percent. Emerging market equities were also a
little softer last week, falling 0.5 percent. But emerging
markets now have fallen in each of the past three weeks and
in four of the past five for a cumulative decline of 4.0
percent. Overall, the MSCI All-Country World Index dropped
1.6 percent last week and is unchanged in the past seven
weeks.
Clearly, a degree of reassessment of the underlying
assumptions surrounding this year's, until recently
uninterrupted, equity rise is underway. What had become
something of a one-way bet on improving economic data,
stability in the Eurozone's debt crisis, and ever rising
equity prices is suddenly being reconsidered in view of a few
cracks in the argument. A continued period of market
consolidation, or a more meaningful price correction, now
seems like a higher percentage possibility. But as we and
others have been saying for some time, a pullback after such
an extended period of strength should not be unexpected,
especially in an economic and political environment as
uncertain as this. However, even should that occur it would
not necessarily mean the end of the rally. Events and
economic data will determine that. As will earnings.
First quarter earnings season officially begins on Tuesday
and will give equity investors plenty of questions to
ponder-among them, not only how strong was the first quarter,
but what kind of visibility is there for the rest of the
year? And, how certain can any forecast really be in view of
the looming presidential election? But if the recent pattern
persists, the market will be more discriminating than earlier
in the rally, rewarding strong performers who deliver
confident guidance, and punishing those who miss estimates
and offer cloudy forecasts.
Important Disclosures:
The views expressed are as of the date given, may change as
market or other conditions change, and may differ from views
expressed by other Ameriprise Financial associates or
affiliates. Actual investments or investment decisions made
by Ameriprise Financial and its affiliates, whether for its
own account or on behalf of clients, will not necessarily
reflect the views expressed. This information is not intended
to provide investment advice and does not account for
individual investor circumstances. Investment decisions
should always be made based on an investor's specific
financial needs, objectives, goals, time horizon, and risk
tolerance.
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.
MSCI-All Country World Ex. U.S. Index: Is an unmanaged index
representing 48 developed and emerging markets around the
world that collectively comprise virtually all of the foreign
equity stock markets.
It is not possible to invest directly in an index.
Investment products are not federally or FDIC-insured, are
not deposits or obligations of, or guaranteed by any
financial institution and involve investment risks including
possible loss of principal and fluctuation in value.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
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