The end of the quarter brings plenty of data for investors to ponder. This is the fnal week of the first quarter and the markets are set to post positive results in terms of stocks. The key will be in the data going forward. Can the US economy keep pace with the growth of stock prices? Some concerns about this issue came in the home sales last week not meeting expectations. Those concerns will pour over into the pending home sales due on Monday and then the consumer confidence data out on Tuesday. This week and next are full of economic data to confirm growth or create renewed worries about the pace or lack of growth in the economy. Data does matter when it comes to investor confidence. Thus, we have to remain cautious about the markets in the coming weeks relative to the data released, but don’t forget we are heading into earnings season. The fun never stops.
With the quarter ending, and potentially being the best in nearly fourteen years, what does the market do for an encore? It isn’t likely the second quarter will match in terms of returns, addting to the pressure on investors. Can they be patient following a great quarter or do we see some profit taking as a result of the forward looking data? That answer will come in terms of data, as stated above.
There were signs of worry last week manifesting in the Treasury bonds. The yield on the thirty year bond fell to 3.3% pushing the price of the bond higher. Money was moving once again to safety or what is perceived as a risk-off asset. Bernanke made comments that he believed the US economy has improved slightly, but was not out of the woods yet. Thus, the Fed Chairman still wants rates low and is willing to talk them down for now, and you can’t rule out another round of quantitative easing if the talk doesn’t work. He wants the housing market recovery to take root before rates rise. After all, isn’t that the role of the Federal Reserve?
Oil prices remain an issue facing the US and global economies as well. The price of crude has pushed back near the $107 mark. Rumblings are back in the Israel/Iran turmoil. If that issue does rise in probability the price of oil would rise accordingly. There was confirmation that Iran has taken 300,000 barrels a day off the market. This type of news drives speculation in pricing short term, but it is still the longer term issues we are focused on when it comes to the economic impact. The higher the price of gasoline at the pump the greater the impact to the consumer confidence. If you combine the emotions relative to the price of oil to other issues discussed, it could add to the downside pressure on stocks.
Europe is back in the worry column as well. The same issues different country. Spain has become the new target of concern over sovereign debt. There were some election results that may challenge the austerity process to cut spending, and the Italian Prime Minister made comments that Spain could reignite the euro-zone debt crisis if it fails to to impose the necessary austerity measures. That sent the markets lower in Europe, but random comments are temporary. The issues facing Spain will take time to resolve and impact the markets. This is something to watch however as it unfolds.
The bottom line is to watch, listen and act according to your goals. The issues above are all speculation driven short term. They may grow into a legitimate concern to economic growth in time and reality, but we have to manage our money according to our belief or outlook. Thus, adjusting our downside risk according to our beliefs and risk tolerance, and keep moving forward. Speculating on what can or may happen is what drives volatitliy short term. Manage your portfolio based on your outlook, time horizon and risk tolerance.