First Quarter 2013 Market Review
and Second Quarter Outlook
By Pax World Chief Investment Officer, Chris Brown
Observers comment routinely on the slow pace of the global economic recovery following the 2007 – 2008 financial crisis. The fact that the positive and negative signals we saw at the beginning of 2012 are still in place as the first quarter of 2013 ended is testament to the very fact that it is a long and often bumpy road back from the depths we reached five years ago.
Positive Signs of Economic Recovery
On the positive side of the ledger, U.S. household wealth has returned to the peak level reached before the Great Recession. The 10 consecutive days of record high closing prices for the Dow Jones Industrial Average (DJIA)1 in March, including a new record high as recently as March 28, has started to shift investor cash flows from bonds to the stock market. Investors abroad also were rewarded by a very strong performance by the Nikkei2 stock market index in Japan while the Financial Times Stock Exchange (FTSE) 1003 Index in London touched a five-year high during the first quarter.
On the other side of the ledger, investors also must be wary of concerns such as the bank calamity in Cyprus, and the resentment of austerity measures in Italy that has pitched that government into uncertainty. Moody’s Investors Service cut the credit rating of the U.K. and recessionary conditions persist throughout much of the Eurozone. A transition in leadership in China, financial engineering in Japan, and a dangerously destabilizing environment on the Korean peninsula could cloud the economic outlook for the Asian region. Even at home, concerns have arisen about the ability of the U.S. Federal Reserve (the Fed) to curtail its bond purchasing activity, whenever that time does arrive, and ongoing partisan dysfunction in Washington, DC, continues to weigh on the minds of investors.
Stocks Climb a Wall of Worry
So investing in 2013 feels better but, perhaps unsettlingly so, much like it did in 2012 and during 2011. “Stocks climb a wall of worry” is the old adage, and it may have applicability today. The attendant concern is that no one can say with certainty what direction equities will take after reaching the top of the “wall.” In environments like this, finding companies that are excellently run and buying high quality bonds that are dependable sources of regular income remain the order of the day, as always.
To read more download the full market outlook here
1The Dow Jones Industrial Average is the price-weighted average of 30 actively-traded blue chip stocks on the New York Stock Exchange (NYSE).
2The Nikkei Index is a price-weighted index for the Tokyo Stock Exchange calculated daily by the Nihon Keizai Shimbun newspaper.
3The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization maintained by the FTSE Group, a subsidiary of the London Stock Exchange Group.