March 2010 Market Wrap
April 7th, 2010
· Following February’s recovery from a meager sell-off attempt, March continued and extended the on-going bull trend as all four major averages (Dow 30, S&P 500, Naz 100, and Russell 2000) closed the month solidly in positive territory for the second straight month.
· All nine S&P sector indexes gained in March which brought eight of the nine sectors into positive territory for 2010. Three of the sectors were up over 10% for the year as the close of Q1.
· Beginning in March, Russell 2000 emerged as the best performing major average by posting a 7.97% gain with the Naz 100 being the second strongest index with a 7.68% gain for the month. That leadership position has been increasingly strong in the early days of April. The index is up 2.10% for April (+10.80% for 2010). The second strongest index is the S&P 500 which is +0.59% for April (+5.50% for 2010).
· All four major averages set new recovery highs in March by trading up through their respective January highs. April has extended those trends and current margins (at cycle highs set during April 6-7) above their respective January highs are: Dow 30 +2.41%, S&P 500 3.59%, Naz 100 +4.74%, and Russell 2000 +8.27%.
· Russell 2000 was the first index to eclipse its January peak which happened on March 2. That was followed by Naz 100 (March 9), S&P 500 (March 12) and Dow 30 (March 17).
Performance from the bear market lows through March 31 for the major averages and for the S&P sectors has been:
Dow 30: +67.8% S&P 500: +75.38% Naz 100: +92.21% Ru2000: +98.09%
Con. Disc: +108% Cons. Stpl: +44.57% Energy: +43.88% Fincls: +173.67%
Hthcare: +48.63% Industrls: +109.45% Materials: +90.93% Tech: +91.82%
Utilities: +33.29%
The Economy
· Final Q4 GDP came out on March 26 at +5.6%; below the consensus estimate of +5.9% and below the lowest estimate in the expected range of +5.7%-+6.0%. This was the lowest of the three estimates of Q4 growth. Advanced Q4 GDP was +5.7% which was followed by Preliminary Q4 GDP at +5.9%. Real GDP grew by 0.1% year-over-year in Q4 after falling by 2.6% in Q3 on a year-over-year basis. Advanced Q1 GDP comes out on Friday, April 30.
Employment
· On March 31, ADP reported March Employment of -23,000 (est. was +40,000). February Employment was revised from -20,000 to -24,000. The February revision took the job loss figure below January’s level which ended a streak of monthly improvements in the series at eleven. March was the twenty-sixth consecutive month of job loss. In the ADP press release, the following comment was included.
Since employment as measured by the ADP Report was not restrained in February by the effects of inclement weather, today’s figure does not incorporate a weather-related rebound that could be present in this month’s BLS data. In addition, today’s figure does not include any federal hiring in March for the 2010 Census. For both these reasons, it is reasonable to expect that Friday’s employment figure from the BLS will be stronger than today’s estimate in the ADP National Employment Report.
· On April 2, BLS reported Non-Farm payrolls for March at +162,000 (est. was +200,000). February was revised to show -14,000 jobs (previously reported at -36,000) and January was revised to show +14,000 jobs (previously reported at -26,000). Long-term Unemployment (those unemployed for six-months or longer) expanded by 6.75% over February’s level. Also, Involuntary Part-Time workers (part-timers who want to be full-time) expanded by 3% in March.
· Unemployment came in at 9.7% (est. was 9.7%).
What’s Next?
The promise of census hiring began to come through in March as approximately 48,000 of the 162,000 jobs added were temporary census workers. Temporary is an important part of that equation. While market participants have been enthusiastically cheering the string of less-bad employment-related news, consistent job growth has been the missing element and has also been one of the most relied-upon tenets of the bearish thesis.
As the 162,000 number crossed the tape (on a closed day for equities in observance of Good Friday), reaction in the futures market was surprisingly subdued. That response and the market’s response since suggests that investors are more than willing to “sell the news” of a strong jobs number. Lengthy anticipation of job growth has propelled market psychology, seemingly with each passing month, into a place of heavily-skewed optimism. In addition to the headline disappointment, it seems that investors are at least considering the idea that temporary job growth is just that….temporary