April 22, 2013 - A Difficult Week

Even as we share this update with you, the events that unfolded last week in Massachusetts and Texas are still fresh in our minds. Our hearts will remain with the victims and their families, as well as the residents of Boston and West Texas, as they rebuild their lives from these tragedies. In times like these, we are reminded of the things that are truly important in life. If there is anything we can do for you or someone you know who was affected by any of last week’s events, please don’t hesitate to ask for our help. 

It was also a difficult week for equity markets, as major indices experienced their biggest drop so far this year, pummeled by earnings reports and global concerns. For the week, the S&P 500 lost 2.11%, the Dow fell 2.14%, and the Nasdaq trimmed 2.70%.[i] 

Earnings drove much of the selloff last week. Although the earnings reported thus far have largely beat estimates, disappointing reports from a handful of companies had an oversized effect on markets.[ii] While 70% of the reports have beaten earnings estimates, only 44% have beat revenue expectations. This indicates that earnings results have largely been achieved by cost-cutting measures rather than organic growth. One factor that appears to be driving the weakness in revenue growth is soft demand overseas.[iii]

Markets reacted poorly to China’s unexpectedly poor first-quarter GDP report, which showed a weak 7.7% growth instead of the 8%+ growth analysts had been expecting.[iv] This indicates that China’s recovery may still be fragile. Coupled with concerns about Europe, it’s clear that global economies still have a long way to go.

On the positive side, investors responded well to Tuesday’s upbeat economic data, which shows that the news isn’t all bad. On the housing front, the Commerce Department reported that March housing starts increased by 7.0% from February’s estimate, while building permits declined slightly (though they are still 12% above March 2012 numbers).[v] A key measure of inflation also declined, supporting Fed chairman Ben Bernanke’s position that inflation is not an issue for now. Manufacturing also appears to be on the upswing; the Fed’s report shows that industrial production increased by 0.4% in March, beating expectations.[vi]

In recent weeks, disappointing jobs numbers, slumping consumer confidence, and other weak data has indicated that the economy could be slowing down. However, the Fed’s most recent Beige Book survey shows no sign of such a slowdown. The report shows that despite prevailing concerns, the economy continued to grow at a moderate pace, bolstered by a vibrant housing sector and auto sales.[vii] With so much conflicting data to review, many people struggle to make sound investment decisions. If you have any questions about how certain factors could affect you or your portfolio, please don’t hesitate to reach out to us. We pride ourselves on helping our clients cut through the clutter to develop strategies that are suitable for them and their goals.

As mentioned earlier, our thoughts are with the victims of Monday’s Boston bombing and those affected by the Texas plant explosion. It can be hard to think positively during such times, but we are proud of the swift work of first responders and investigators, and the way Americans have reached out in support of those in need.

ECONOMIC CALENDAR:

Monday: Existing Home Sales
Tuesday: PMI Manufacturing Index Flash, New Home Sales
Wednesday: Durable Goods Orders, EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: GDP, Consumer Sentiment