Market Update: Better News for Stocks and Jobs

GRAND RAPIDS, Mich. - May 14, 2014 - PRLog -- Better News for Jobs and Stocks
Kate Warne, Ph.D., CFA
Investment Strategist

After last year's rapid rise, stocks have seemed stuck in the mud in 2014. But the Dow Jones Industrial Average finally reached a record high on April 30. Broader measures of the stock market, such as the S&P 500, had already reached new highs earlier in the year. And we think signs of improving economic and earnings growth could mean more stock market gains ahead. But keep in mind that stocks rarely take a smooth or direct path - so make sure you're planning to stay invested through any short-term market volatility.

More Signs of a Spring Thaw

In the first quarter, economic growth was only 0.1%, well below expectations. But the unusually cold and snowy winter contributed to most of the slowdown, and we think the economy is accelerating. We've seen signs of improvement as the weather warmed:

Better job growth - April's job gains of 288,000 were the largest since January 2012 and well above expectations of a 218,000 increase, according to Bloomberg. And the unemployment rate dropped to 6.3%, its lowest level in more than four years.
Improving confidence - Consumer confidence rose to its highest level in March since 2008. Business confidence has also improved, and orders for capital equipment increased in March. Investors are more optimistic, too, and have kept increasing their stock investments in 2014.
Increased consumer spending - Consumer spending rose 3.0% in the first quarter, and purchases of big-ticket items such as cars and houses reflect improving confidence. March auto sales were the highest since 2007 - and, while down from recent peaks, housing sales are still solid.
Rising earnings - About two-thirds of the companies in the S&P 500 have reported first-quarter earnings. Despite worries about a slowdown, earnings were up 4.1% over the past year, according to Thompson Reuters IBES, and outlooks are generally positive.

What's Ahead?

We think the economy will grow by about 2.5% in 2014 and continue to expand in 2015, as these trends continue. We're also seeing better economic growth in many other countries. An improving economy and rising earnings provide support for stocks to rise over time. And, in the past, faster economic growth has generally led to rising interest rates on long-term bonds.

Although better news can help markets continue to move higher, remember that stocks are volatile. So make sure your portfolio is prepared for short-term ups and downs by reviewing its mix of stocks, bonds and international investments. Rebalance your portfolio, if needed, to return to the appropriate amounts of those investments for your situation, risk tolerance and long-term financial goals. That way, you'll be able to continue to stay cool, calm and invested.

Past performance does not guarantee future results. Diversification does not guarantee a profit or protect against a loss.