2 April 2013 Stocks Reach Record Highs Stocks capped off a strong first quarter by closing at record highs. After coming close several times in the past few weeks, the S&P 500 Index gained 0.8% last week to close at 1,569, surpassing the precredit-crisis 1,565 record from 2007. The Dow Jones Industrial Average gained 0.5% to yet another new high of 14,578 and the Nasdaq Composite rose 0.7% to a one-year high of 3,267. Growth Has Been Stronger Than Expected With the first quarter now behind us, we thought this would be a good time to take a brief look back at how the economies and markets have performed versus expectations from the beginning of the year. Three months ago, it was expected that the US economy would grow slowly, with inflation and interest rates both remaining low. It was also expected that Europe would continue to struggle and it was believed that Chinese growth would accelerate. From an economic perspective, the first quarter pretty much played out this way. The European economy is still contracting and Chinese growth (while erratic) looks set to come in at around 7.5% or 8% this year. In the United States, inflation remains low, hovering around 2% and interest rates appear to be on an uneven trajectory, but are slightly higher than where they were at the start of the year. If anything was wrong in the economic forecast, it was the underappreciated resilience of the US economy. The year started with concerns about the effects of the fiscal cliff, but despite a significant tax hike, consumption levels thus far have held up better than expected thanks to an improving labour market and an ongoing resurgence in US home prices. We won’t know exactly how fast the economy grew in the first quarter for another month, but the numbers will almost certainly be better than almost anyone expected they would be three months ago. Moving Forward Some of the more recent economic data has been slightly weaker-than-forecast but the economic backdrop is still reasonably supportive for risk assets. For example, the US is expected to grow by around 2% again this year, hampered a little by fiscal measures, but a stabilising housing market may help consumer confidence. Analysts see eurozone growth remaining in mildly negative territory this year but this again masks divergences among countries and most economists see positive growth resuming quickly thereafter. China, which dominates the Asian growth picture, is expected to grow, as mentioned above, at around 8% in 2013, similar to last year’s rate. Inflation is seen to be a nonissue for investors again this year. Bonds Italian bond prices fell after the leader of the Democratic Party, Pier Luigi Bersani, ruled out the possibility of creating a broad coalition following a meeting with rival politicians. Elsewhere, worries about the Cypriot banking system hurt sentiment in peripheral European bond markets. The Merrill Lynch over 5 year government bond index fell 0.3% over the week.
As long as central banks continue to ‘sponsor’ a low interest rate structure the so called ‘bond bubble’ in Germany and the US is unlikely to burst. Italian bond spreads have risen by about 1% as a result of the political uncertainty there but the knock-on impact to other markets has been very limited so far. Similarly, the immediate impact of the Cyprus situation has been very modest, albeit both situations have the potential for additional negative impact, if only in the short term. Positive investor sentiment on the periphery’s now quite high and this always makes such situations more vulnerable to bad news flow; setbacks would not be unusual. Commodities The Brent crude oil price rose over 2% on the week, closing at $110 a barrel. Goods data, including the GDP and the durable goods orders, were behind the gain. Gold gave some back of its previous week’s gains as the reopening of banks in Cyprus eased immediate concern that Europe’s debt crisis will deepen, reducing the precious metal’s appeal as a store of wealth. Currencies The euro weakened against the dollar following the upbeat data out of the US. The €/$ rate finished the week at 1.28, a weakening of 1.2%. Elsewhere, the pound sterling had its biggest quarterly drop against the dollar as the UK economy contracted in Q4, fuelling concern about an unprecedented 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
1 Year 9.46% 9.35% 8.67% 8.03% 8.37%
3 Year 20.25% 18.51% 23.18% 17.50% 14.64%
5 Year 25.85% 18.85% 42.08% 30.07% 15.35%
*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: Aviva Investment Managers, Bloomberg, Zurich Investment Managers & Blackrock.