April: A month of reckoning?

In many parts of the country, the weather has taken a slight turn for the better. The economic data released for the first quarter of the year has been viewed as being distorted by the weather. With the start of first-quarter earnings reporting season in April, it’s time to see how businesses really weathered the winter. It will be interesting to see how many executives blame disappointing results on the weather. What will be more interesting is to see how investors respond to the news.

Highlights:

  • Economic data may start turning more positive in the U.S. That, at least, is our expectation as we emerge from a winter of great discontent. Because the government releases data with a lag, the March employment report—released the first Friday of April—may settle the question of whether the winter slowdown was mainly weather related. Other uncertainties will also resolve slowly over the next few months. Will Japan’s economy weather the hike in consumption taxes that take effect in April? And how will numerous elections in May pan out?
  • Equity markets that are effectively flat for a while should give investors pause. Is it a pause before more gains, or is it a turning point? We believe that factors behind the market rise last year are still in place this year: decent fundamentals, an accommodative Federal Reserve (Fed), and reasonable valuations. Thus, we view the market as consolidating, not turning.
  • The fixed-income market had a decent first quarter, with most gains realized in January and February. While the Fed sounded a little more hawkish than many expected at its March 19 press conference, it hasn’t done anything to materially change expectations of when it might raise rates. It’s still far enough in the distance that it shouldn’t be a worry in 2014.

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