Permanent Value

First Quarter Review

Bruce Doole
April 5th, 2011



It may not have felt like it, but the stock market, as measured by the S&P 500, rose 5.4% during the quarter. Despite some trying moments, the market rose “amid growing optimism that the recovery from the financial crisis had become self-sustaining, according to The Wall Street Journal. The stock market seems to have taken to heart the U.S. Postal Service commercial that said, “…neither snow, nor rain, nor heat, nor gloom of night, nor the winds of change, nor a nation challenged, will stay us from the swift completion of our appointed rounds.” In this case, the “appointed rounds” was a stock market that went up.

Here are the returns from a few other countries:

First Quarter Country Returns Based on the Dow Jones Global Indexes Ranked by U.S. Dollar Performance


Political instability in the world’s leading oil-producing region sent shockwaves through the oil market. In fact, during a 13-day period in February, oil prices rose a stunning 25%. For the quarter, they rose 16.8% and settled above $100 per barrel, according to The Wall Street Journal. Should oil prices remain above $100 per barrel for an extended period, it could become a drag on global economic growth and may lead to pressure on stock prices. About the only good news on oil prices is they are still well below the $145 per barrel price reached in 2008.


Pardon the poor grammar above, but the dollar keeps sliding. During the quarter, it lost 5.7% against the euro, 2.4% against the Japanese yen, 2.8% against the British pound, 1.2% against the Australian dollar, and 1.6% against the Brazilian real, according The Wall Street Journal. There was no flight to safety in the dollar during the quarter despite the Middle East problems, the Japanese triple tragedy, and the continuing sovereign debt issues in Europe.

Low interest rates in the U.S. appear to be the main culprit in keeping pressure on the value of the dollar. Low rates make the dollar less attractive relative to other countries that may offer higher rates. The good news is a weak dollar makes our exports cheaper and that may help some of our large, multi-national companies. Analysts are keeping an eye on the Federal Reserve for any sign of a change in monetary policy. Once they start raising rates, which many analysts don’t expect until 2012, it could lend some support to the dollar, according to The Wall Street Journal.


How scared are investors? One way to measure fear in the market is to look at the CBOE Market Volatility Index — the “fear gauge” known as the VIX. This measure rose significantly during the height of concern over the Japanese earthquake. In fact, it jumped 20% in one day in Mid-March before declining 39% over the next week, according to The Wall Street Journal and Bloomberg. Despite all the gyrations, the VIX ended the quarter roughly flat.


There’s no shortage of things to worry about in the market, but the strength of the economy and the expectation that corporate earnings will hold up seem to outweigh any nervousness over geopolitical issues or natural disasters. Some key things to monitor over the next few months include commodity prices, interest rates, the status of QE2, and, of course, corporate earnings. As always, we have our hands full!

WEEKLY FOCUS – Think About It

“How much pain have cost us the evils that have never happened.”

–Thomas Jefferson