The Markets:

Spring brake

Last week, investors were handed several pieces of softer-than-expected economic reports, including weekly jobless claims, the closely-followed purchasing managers’ surveys of the manufacturing and service sectors (ISM reports), and a disappointing 88,000 rise in March nonfarm payrolls (BLS).  There are nagging worries the economy could be entering its fourth mid-year economic soft patch in as many years.

As the chart below illustrates, the yield on the 10-year Treasury (bond yields and bond prices move in opposite directions) has tracked the S&P 500 Index fairly closely since the middle of 2012, which suggests that as investors grew more optimistic about the economy, funds drifted out of safer assets, like bonds, and into riskier assets, such as stocks.

But in the middle of March, a renewed interest in Treasuries took hold, which has since pushed the yield on the 10-year bond to its lowest level since early December, even as the broader stock averages held up. Some of the dip occurred amid worries about euro-zone banks. Though the Cypriot banking crisis has faded from the front pages, interest in less-risky Treasuries has swelled.

Europe’s still in a recession, and European central bankers offered little support at last week’s meeting. Further, lingering worries about China have not abated.  Still, the bond market and the internal signposts in the stock market seem to be trying to price in a modest economic slowdown as we head into the second quarter of the year.

Factors that might dampen activity include the more restrictive fiscal policy that’s in place, including the payroll tax hike, the tax hike that averted the fiscal cliff, and the sequester. Each one by itself is manageable, but they are all converging at the same time.  We continue a more cautious approach at this time in our overall allocations for all risk levels and will keep you posted.

Quarterly Reviews:

This quarter we are offering private review meetings, either in person or by phone.  If you have not yet scheduled your individual meeting, please call so we can set up a time that best fits your personal schedule.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

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