Market Beat: A review of the first quarter
TRUCKEE, Calif. — The first quarter of 2013 got off to a whopping start. The S&P 500, the index of the 500 leading companies in the United States, has recorded a total return of 10.61 percent for the first three months of the year. The total return number includes the dividends that have been paid. The price return for the index has been 10.03 percent.
The best performing sectors for the quarter have been health care at 15.22 percent and consumer staples at 13.77 percent. I discussed the possibility of the health care sector having good performance this year in a previous column about what areas of the market would likely perform best with an Obama win versus a Romney victory in the presidential elections.
The worst performing sectors this quarter were materials at 4.17 percent and information technology at 4.21 percent.
The economic data over the last three months has been mostly positive, showing continuing signs of slow steady growth.
The latest revised number for GDP, gross domestic product, came in at 0.4 percent. The unemployment rate has continued to decline as more and more jobs are being created each month and currently stands at 7.7 percent, which is a high level, but has been declining.
Looking forward, the market will be focused on the usual slew of economic reports and the corporate earnings season which will kick off on April 8 with Alcoa’s report. For some reason, Alcoa always gets the credit for “officially” starting the earnings reports season, but there are some major companies that will release their earnings before Alcoa does on the 8.
They include Fed Ex, Oracle and Nike. Actually, several S&P 500 companies will have reported prior to Alcoa’s release. Corporate earnings have been quite strong and earnings disappointments are one thing that could lead to a market sell off.
Earnings growth has been essentially flat the last couple of quarters. Most of the growth in corporate earnings has come from the finance sector.
According to Zack’s Investment Research if you subtract finance earnings from the last quarter of 2012, growth only comes in at 0.5 percent instead and 2.0 percent. The consensus forecast for earnings is also quite optimistic.
The same study from Zack’s says that earnings are forecast to grow 3.7 percent in the second quarter, 7 percent in the third quarter and 13 percent in the last quarter of the year.
That is a very strong earnings forecast for the rest of the year which means that any disappointments could have an adverse affect on the market.
Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.