Stocks Bounce Back, but Dip on US GDP report

30 April 2013 Stocks Bounce Back, but Dip on US GDP report Following a notable downturn two weeks ago, stock prices managed to stage a recovery last week, but did falter on Friday in the face of a first-quarter US gross domestic product report that was a bit worse than expected. For the week, the Dow Jones industrial average rose 1.1% to 14,712, the S&P 500 index advanced 1.7% to 1,582 and the Nasdaq composite climbed 2.3% to 3,279. In fixed income markets, US treasury yields continued to fall, as prices correspondingly rose. The yield on the 10-year US treasury declined from 1.70% to 1.66% The first-quarter GDP report showed that the US economy grew by 2.5%, less than expected but a significant improvement over the fourth quarter of last year. The data showed that the US was dragged down by lower government spending (which should not have been a surprise given the sequester-related spending cuts), but, encouragingly, there was a healthy rise in household spending.

One problem with the US economy is that higher spending has not been matched by higher income levels. We have been saying for some time that for the economy to continue to grow, consumers will need to make more if they are going to continue to spend more. On early Monday morning (April 29), the US commerce Department released march’s personal income data, which showed only a 0.2% increase, less than the anticipated 0.4% advance. For the US economy to continue to grow at the pace seen in the first quarter, we’ll need to see improvements in this statistic; otherwise consumption is likely to slow, and with it, the overall economy.

Eurozone growth will likely stay in mildly negative territory in 2013 but most economists expect positive growth to resume thereafter. China, which dominates the Asian growth picture, should still grow strongly but probably less than the 8% initially forecast. Goods’ inflation globally remains modest.

Most major economies continue to require very loose monetary policies and, therefore, short rates are likely to stay at ultra-low levels for a protracted period to come. Barring a major policy reversal, the Fed will keep policy easy until the labour market has improved considerably further. Other central banks are neutral in their stance or will ease further.

As regards the ECB, most analysts expect that it will stay highly accommodative during

2013 and that, as previously discussed, it will likely deliver another rate cut and policy initiatives this week.

Historically low long-term interest rates in many countries will likely remain for as long as central banks continue to sponsor a low interest rate structure. For instance, German bond yields have approached their historic lows again recently having risen sharply at the start of the year. Meanwhile, within EU peripheral markets, to-date investors have absorbed negative developments in Italian politics and the Cyprus debacle with very limited impact, either directly or indirectly. Confidence in the ECB and policymakers remains very high but, nonetheless, peripheral markets remain vulnerable to some normal setbacks.

Equities remain within historic valuation ranges and investors are still disposed towards risk assets in general, as evidenced by the broad S&P US equity index recently attaining a new high. The current US corporate earnings season is a good test of where investors’ profit expectations are positioned for this year. Most market strategists see equities as being much better value than bonds and, additionally, the general view is that equities are also being supported by central bank liquidity. The upward momentum in most markets has slipped of late but, overall, equities have still gained close to 10% in euro terms so far this year.

Bonds Eurozone bonds enjoyed a good week as Italy moved towards the formation of a government and speculation mounted that the ECB will cut rates at its meeting on 2 May. Yields on 10-year Spanish bonds fell 34bps on the week, down to 4.28%, while German yields hovered near their lows, closing at 1.21%. The Merrill Lynch over 5 year government bond index finished the week 1% higher.

Commodities Strong physical demand for gold sent the price up 4% on the week and it closed the week 10% up from its April 16 low. Brent crude oil fell 1% on Friday but finished the week a couple of percent higher, at just over $102 per barrel.

Currencies The â‚Ź/$ rate finished the week just above 1.31, a marginal weakening over the previous Friday. Sterling hit its highest level against the euro since January, boosted by figures on Thursday which showed that the UK had narrowly escaped a triple-dip recession.

House View Performance Thomond Asset Management maintains an investment house view on how we feel your funds should be invested with each fund manager. Below we have provided you with the performance of each of these managers on an annualized basis.

Fund Manager Zurich New Ireland Standard Life Aviva Friends First Irish life

1 Year 11.09% 10.71% 11.7% 8.49% 8.89% 13.57%

3 Year 20.81% 18.89% 24.64% 17.85% 14.21% 18.45%

5 Year 27.08% 20.1% 44.33% 31.2% 15.41% 38.37%

*Performance provided by Financial Express

Note: The performance of the above portfolios may not directly correlate to an individual’s portfolio. Please speak with your financial advisor to understand your specific portfolios performance. Asset allocations between fund managers will differ.

Source: Bloomberg, Aviva Investment Mangers, Zurich Investment Managers & Blackrock