Weekly Market Summary
The major indexes recorded new highs throughout much of the week, as evidence suggested the U.S. and other major economies were continuing to grow. First-quarter earnings reporting season also got under way. Analysts have lowered earnings expectations considerably, although some hope that might leave room for more positive surprises as the season unwinds over the coming few weeks.
Markets moved higher through Thursday, as some positive signals suggested that the recovery remained on track and helped assuage concerns over the previous week’s disappointing monthly jobs report. Investors were particularly encouraged to see a sharp drop in weekly jobless claims, which had been creeping upward over the past month.
Growth signals from the world’s second- and third-largest economies were also positive. China reported a strong rise in imports, while hopes continued to grow that economic stimulus programs in Japan would push the economy out of its doldrums. Tokyo-based analysts believe the new government in Japan has achieved a real turnaround for the country, and the Japanese market offers real long-term opportunities if the changes continue.
Stocks ended the week on a down note, however, as new economic data called the strength of the recovery into question once again. The Commerce Department reported that retail sales declined by 0.4% in March while lowering its growth estimates for previous months. A measure of consumer sentiment also reached its lowest level since last summer. Economists have been nervously watching spending patterns to gauge the impact of federal tax increases and spending cuts.
Demand for U.S. Treasuries weakened, driving long-term yields slightly higher. The Federal Reserve’s minutes from its March meeting revealed disagreement among Board members about how soon the central bank should wind down its bond-purchasing program. Most committee members, however, expected asset purchases to continue at least until year-end. Treasuries recaptured some lost ground on Friday in the wake of weak economic data (see below). The municipal market fell modestly, starting off well as investors put cash to work after March’s underperformance, but falling Treasuries pulled munis lower by the end of the week. Commercial mortgage-backed securities held up better than other investment-grade sectors, as improved valuations attracted buyers. Investment-grade corporate bonds enjoyed a good week, with investor interest remaining firm, particularly for shorter-maturity bonds. New bond issuance was steady.