Fear of No Growth

Since the beginning of this year the stock and bond markets have been rather subdued. In 2013 the general outlook was that the economy was picking up momentum. The increase in business activity, business profits and a shrinking of government spending was seen leading the economy back to “normal.”  The results for the year were in many ways more robust than what had been expected.
More jobs were created, new jobless claims dropped and the unemployment rate fell. As we came into the first quarter of 2014 there was concern that economic growth was lagging. Jobs were still being created, new jobless claims were still down and the greatest number of people since the first quarter of 2008 were employed. The problem with all of this was that the sense of “growth” in many sectors of the economy wasn’t there in the first quarter. The S&P 500, as of this writing, is up an anemic 0.0% for the year.
As we await results from corporations for the first quarter, it seems likely stocks will fall further. At the same time, the slow growth of the economy has made bonds stronger. There is a reduced sense of worry about inflation, business earnings are good and the Federal Reserve’s pull back in the buying of bonds and mortgages has not disrupted day to day bond trading.Overall what we are seeing is stability of the economy but with no real growth impetus. It appears that bad weather in the first quarter, coupled with no growth in Europe is what slowed down the economy. As we enter the second quarter we may begin to see signs of a turn around. The European Union is taking steps to grow their economy as Japan does likewise. These moves along with better weather and the growth that is taking place in the U.S. may be enough to get the momentum going again. For now, dividend paying stocks and interest bearing bonds are what’s considered best!

Ed Mallon

Monday, April 7, 2014 at 8:04 AM