Archive for May, 2011
1Q11 Global Capital Markets Summary
The U.S. economic recovery picked up in the quarter despite multiple headwinds; political uprisings, price spikes in key commodities and a massive earthquake in Japan. Private sector employment continued its recovery and the unemployment rate finished the quarter at 8.8%. A spike in oil and food prices led to a sharp rise in consumer inflation with the CPI at 1.96% by quarter-end. The Federal Reserve held steady with its historically low target Fed Funds rate of 0 – 0.25%.
U.S. equities maintained their momentum from fourth quarter 2010. Growth stocks outperformed value stocks in both the large and small capitalization ranges. Small cap stocks continued their outperformance of large cap stocks with small growth outperforming all major style segments for the quarter. All sectors posted positive returns for the second consecutive quarter. Energy (+16.73%), Industrials (+8.72%) and Healthcare (+5.65%) were the top performers. Consumer Staples (+2.47%) lagged all sectors for the quarter.
Despite numerous geopolitical events, U.S. bond markets remained stable. The yield curve steepened across all maturities with 2-year U.S. Treasuries rising 18 basis points to .78% and 30-year Treasuries increasing 16 basis points. Long-maturity Treasuries (Barclays Long Treasury, -1.01%) underperformed short-term Treasuries (Barclays 1-3 Year Treasury, +.02%). Low interest rates continued to drive investor demand for credits, with yield spreads tightening broadly (Barclays U.S. Credit, +.89%; Barclays U.S. Mortgage, +.58%). High yield bonds continued their outperformance of all U.S. bond sectors (Barclays U.S. High Yield, +3.88%).
Overseas markets were highly volatile in the quarter due to various global events. Strengthening fundamentals in the major European economies were partially offset by the continuing financial crises in Portugal, Greece and Ireland (MSCI Europe, +6.46%). The March 11 earthquake in Japan drove Pacific region equities lower for the quarter (MSCI Pacific, net, -2.03%). Emerging market equities were slowed by higher oil prices, food prices and global volatility (MSCI Emerging Markets, net, 2.05%).
Asset Strategies Portfolio Services, Inc. is an independent institutional investment consultant located in Auburn Hills, Michigan. For additional information please call (248) 373-9900.
1Q11 FUNdamental Facts
- From 1964-2007, the average real return for the S&P 500 in the third year (October 1st to October 1st) of a Presidential Election cycle has been 23.2% according to research by Jeremy Grantham, Chief Market Strategist at GMO, LLC.
- Of the 19 periods or ‘third year, calendar year results’ since Franklin D. Roosevelt, there has been one down year, finishing at -2% in 1947; also from Grantham’s research.
- Since the March 2009 U.S. stock market bottom, the Russell 2000 is up 143% compared to the S&P 500, up 95%.
- The Russell 2000 is trading at 18x one-year forward earnings, about 1.3x the P/E of the market’s largest 200 companies. According to research by Credit Suisse, this is the highest disparity since at least 1979.
- At the end of 2010, U.S. national debt was $14 trillion. The U.S. population was just under 309 million. This equates to a personal debt obligation of $45,345 per person. Unfortunately, less than 50% of the population pay taxes.
- The Federal Reserve’s measure of inflation, CPI ex-Food and Energy is up 1.2% year-over-year ending in March. CPI including Food and Energy was up 2.7%, more than double the Fed’s measure.
- In a research paper composed for the International Monetary Fund (IMF), Richard Feinberg estimates 400 gallons of oil are used per year, to provide food for each American. Foreign oil dependency?
Asset Strategies Portfolio Services, Inc. is an independent institutional investment consultant located in Auburn Hills, Michigan. For additional information please call (248) 373-9900.
