Monthly Market Summary

April 2012

*  As Barron’s recently noted, "every bull move worthy of the designation suffers the occasional pause for breath." After soaring more than 25% over six consecutive months of gains, the stock market, as represented by the S&P 500 Index, took that breather in April. The market’s progress was mixed throughout the month: renewed fears of a European debt contagion and a weaker U.S. economy drove stocks down on some trading days, while strong corporate earnings reports boosted stocks on other days. Overall, the S&P 500 recorded a modest 0.63% loss, diminishing its year-to-date return to 11.88%.

*  During the month, Europe’s debt crisis proved it wasn’t about to escape the harsh glare of the global economic spotlight just yet. But instead of a Greek tragedy taking center stage, the spotlight shifted westward, onto Spain. The Spanish economy, having contracted in the last two quarters, sank into a recession, and Standard &Poor’s downgraded Spain’s credit rating to BBB+, pushing its government bond yields up to about 6%. While this unwelcome news hurt the market, the damage was still minor compared with that wreaked by Greece last summer. As The New York Times noted, the fact that Spanish bond yields "did not spike higher was further indication that the downgrade by S&P provided little new information to the market."

*  In some instances, domestic economic performance was less than encouraging as well. The pace of job creation seems to have slowed at least temporarily, with nearly half as many new jobs created in March than in February. And initial unemployment claims also crept higher; the first quarter’s gross domestic product number came in below expectations (at a 2.2% annual growth rate); and consumer confidence edged slightly lower, according to The Conference Board.

*  But there were also some solidly positive economic developments. For example, corporate earnings for the first quarter are coming in strong, exceeding the expectations of Wall Street security analysts. With 60% of S&P 500 Index companies’ results in so far, earnings are up 8.8% year over year. One encouraging sign: companies are growing profits by increasing their sales, not by reducing staff or other cost-cutting measures. We agree with The Wall Street Journal’s assessment that "a better outlook for the U.S. economy has so far trumped a worse one abroad."

 *  As for better outlooks, in our latest  Quarterly Perspectives With Bob Turner  video, our chairman and chief investment officer, says corporate profits could continue to improve, growing about 10% on average in 2012.  That growth would be based on an expanding global economy and increased productivity, thanks to the use of more automation and mobile and cloud computing. Profits have increased 120% since the worst of the financial crisis of 2008, and stock prices have doubled but still lag profits. If profits continue to grow, stocks are likely to catch up, helping to fuel a continued advance of the bull market, he believes.

*  Growth stocks lost less than value stocks in April, outperforming value for the sixth consecutive month. The broad-based Russell 3000 Growth Index lost 0.27%, compared with a loss of 1.05% for the Russell 3000 Value Index. For the year, growth is likewise outpacing value, by 4.28 percentage points; growth is up 14.27%, versus value’s 9.99%.

*  Two of the nine market sectors – two defensive sectors – in the Russell 3000 Index produced positive returns during April. Utilities, up 2.66%, and consumer staples, up 0.60%, were the only sectors to make money in the month. Technology, down 2.42%, and financial services, down 1.31%, were the worst performers. In contrast, all nine sectors have positive returns for the year to date, with technology up 21.09% and financial services advancing 17.49%. The year’s weakest performer is energy, with a 3.05% return.

*  Among capitalization segments, mid-cap stocks were the best relative performer in April by losing less. The Russell Midcap Index declined 0.33%, followed by the large-cap Russell 1000 Index, down 0.58%, and the small-cap Russell 2000 Index, falling 1.54%. For the year to date, mid-cap stocks have gained 12.56%, outpacing large-cap stocks’ 12.25% rise and small-cap stocks’ 10.70% advance.

The views expressed represent the opinions of Turner Investments and are not intended as a forecast, a guarantee of future results, or investment recommendations. Past performance is no guarantee of future results. The indexes mentioned are unmanaged statistical composites of stock-market performance. Investing in an index is not possible. Earnings growth does not necessarily lead to an increase in share prices. For institutional use only.

The S&P 500 Index tracks the performance of 500 widely held large-cap U.S. stocks in the industrial, transportation, utility, and financial sectors. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price/book ratios and higher forecasted growth values. The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price/book ratios and lower forecasted growth values.