Some Good News and Some Bad News

If you were looking for good news in March, you found it; and if you wanted to worry about bearish signs, they were there, too. The past few weeks have given investors plenty of information to absorb and provided contradictions aplenty. Here are some of the issues that made headlines.

Volatility

Investors have seen the Dow Jones Industrial Average and the Standard and Poor’s 500 both set record highs and experience sharp downturns over the past few months. Investors are seeing stock prices see-saw in a way we haven’t seen since 2011. During the last weeks of trading in March, we saw the S&P finish the trading day at its daily low for three days in a row. Why is this troublesome?  Before March 2015, the market had closed only once at its lowest point for the day. To witness three such closures in a row is a rarity and not something analysts or investors want to see. Signs like this often suggest that the market may be reaching the end of its bull run. On the positive side (and consistent with the market’s recent pattern of contradictions), the market overall emerged almost unchanged over the past two weeks, despite March’s volatility.

Investor Sentiment

Despite the possibly ominous hints mentioned above, individual investors appear to remain upbeat – perhaps recognizing the buying opportunities created by some of the recent losses. According to a recent poll conducted by the American Association of Individual Investors, bullish sentiment increased by more than 11 percent at the end of March. Some market experts are steering their clients to certain energy stocks. Oil prices might continue to fall, but for those willing to play a long game, the energy sector represents the market’s bargain segment, with some blue chip energy stocks 20 percent to 40 percent lower than their pre-slump prices.

U.S. Economy

The Commerce Department’s good news may have helped calm the jitters of investors nervous about market volatility. Statistics showed that the U.S. economy expanded at 2.2 percent annualized during the fourth quarter of 2014. This boost in gross domestic product reported by the Bureau of Economic Analysis was achieved in part by the biggest increase in consumer spending since 2007. Offsetting this good news was the report on corporate profits, which declined in the last quarter of 2014. Economists have warned that the GDP upswing probably will not continue into the first quarter of 2015, citing harsh winter weather, a global oil glut and the strengthened dollar. Job growth, however, continues to stay healthy and consumer spending is expected to increase, boosted by lower gas prices.

The Federal Reserve

Policy makers at the Federal Reserve continue to look at employment statistics and inflation rates as they contemplate raising interest rates. Meanwhile, investors, analysts and business leaders will play the waiting game, wondering when Fed Chair Janet Yellen finally will announce a rate increase.

The above is general commentary and is not intended to replace the advice of tax and investment professionals.

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