How is the last day of first quarter 2011 looking for your portfolio?

March calendar3/31/11: In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.

The last day of the year’s quarter is opening with little fanfare.  This morning’s open is quiet, with stocks down marginally and little news to react to at the macro level as traders await tomorrow’s “double dose” of key economic reports.  European stocks were lower on caution ahead of the release of Irish bank stress test results, while the Japanese market posted modest gains on the yen’s pause and reports of restored manufacturing facilities.  China’s main stock index closed lower, taking a breather after a solid rebound from March lows.  Oil is nearly 2% higher on ongoing Mideast turmoil, while copper and precious metals are moving higher as well.  Agriculture prices are mostly higher immediately following the USDA prospective plantings report, which suggested a still tight supply picture in the coming months.

So, how is the first quarter looking?  It appears that it will be the best first quarter since 1998.  Looking back at Wednesday, stocks extended their rally, “setting the stage” for the favorable first quarter results.  There was no one factor attributable for yesterday’s gains, but certainly a sizable biotech takeout bid, consolidation in the Telecom sector, and approaching quarter end helped encourage the bulls to do more buying.  That said, tepid volumes suggest little conviction, which makes sense with quarter end and the key employment and ISM reports around the corner.  The March ADP report showed another healthy month for private job creation, though it was in line with expectations.

Around our financial planning firm this morning, we were discussing three items that we thought would be of particular interest to our readers:

Will the dollar continue to be the world’s reserve currency? Since the U.S. is the world’s largest consumer, it makes sense for the dollar to continue to be the world’s reserve currency.  China and others may slowly transition away from the dollar, but slowly is the key.  The dollar has been depreciating for 40 years, and the U.S. economy and financial markets have held up well.

Initial jobless claims drop again. In the FOMC statement released in mid-March, Federal Reserve policymakers noted “overall conditions in the labor market appear to be improving gradually.”  Recent weeks’ readings on filings for unemployment insurance, which have largely been free of distortion from weather and/or holidays, support that view.  However, claims still have a bit further to fall to convince markets that the labor market is fully healed.

Just when you thought that you’d heard the last of TARP, a departing federal bailout official had some interesting observations. Neil Barofsky, the departing special inspector general for TARP, warned that the same “too big to fail” firms that nearly brought down the financial system in 2008 have become bigger and more interconnected.  Further, they continue to have unfair competitive advantages over small competitors.  Unfortunately, TARP’s most significant long-term legacy may be an exacerbation of the problem posed by the way in which the Treasury executed the bailout, largely sparing executives, shareholders, creditors and counterparties from dire consequences and reinforcing the government’s role,  not reducing it.

As always, email me here with your questions or comments.  I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.

Greg Powell, CIMA
Wealth Consultant

Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.

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