US stock market ends Q1 with a whimper

Monday, March 31, 2014

Volatile start to the year on bad weather in the U.S., a wave of protests in several countries, including Venezuela and Argentina, and geopolitical trouble in the Crimea region of the Ukraine.

Volatile start to the year on bad weather in the U.S., a wave of protests in several countries, including Venezuela and Argentina, and geopolitical trouble in the Crimea region of the Ukraine.

NEW YORK - The first quarter is ending with a whimper for investors in the world’s largest stock market as Wall Street’s S&P500 index wraps up its worst quarterly performance in five years.

The broad measure of U.S. equities was on track to finish Monday’s session with gains of only 0.5 per cent for the year. That is the fifth quarterly advance for the index, but the weakest performance since the first quarter of 2009, when U.S. stocks hit a bottom in the aftermath of the financial crisis. 

Investors had to contend with a volatile start of the year, which saw severely bad weather in the U.S. hurt economic growth and a wave of protests in countries including Venezuela and Argentina. In addition, instability in Ukraine and the crisis involving the Crimean peninsula has sent global investors to “safe-havens”, such as U.S. government bonds, while stocks suffered.

Throughout the remainder of the year, much will depend on the U.S. economy’s ability to gain more traction after the lackluster start and on corporations’ capacity to resume earnings growth after an expected weak showing in the first quarter, analysts said.

For now, consensus Wall Street estimates point to a decline of 0.4 per cent in first quarter corporate earnings. Over 90 companies have issued negative earnings-per-share guidance for the coming months, while only 18 companies have issued positive future estimates, according to data compiled by the Royal Bank of Scotland.

As for the U.S. economy, investors will have to have to wait until at least May, before they can properly gauge whether activity is showing signs of sustained rebound after the harsh US winter.

But a respite to "equity bulls" may still come from the Federal Reserve.  

Easy monetary policy has been crucial to markets since the financial crisis, with three rounds of massive quantitative easing helping push the S&P500 up almost 180 per cent since the 2009 low. But fears that the central bank was on track to start raising benchmark interest rates earlier than expected has weighed on stocks in the past couple of weeks.

Still, equity markets rose on Monday after Federal Reserve Chair Janet Yellen said “considerable slack’’ in the U.S. labor market supported policymakers’ view that continued monetary stimulus will still be needed for “some time.”

Yellen said in a keynote speech in Chicago that over 7 million people in the U.S. were working part-time but would like full-time employment, and that wage growth has been weak.

 “Recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly,” Yellen said.

“This commitment is strong, and I believe the Fed’s policies will continue to help sustain progress in the job market.”

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