It’s been a bumpy path to start the year for equities. Results were somewhat mixed in March, but domestic equities gained ground during the first quarter. Intermediate bonds were relatively flat during the month but returns have kept pace with those of U.S. large cap stocks year-to-date. The backdrop of stronger global growth expected through 2014 should continue to support corporate earnings in the coming quarters; however, a potential reemergence in volatility should not be discounted.
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Consumer Sentiment rises again; reaches highest point since last July
Following a string of solid economic data in the past month, the University of Michigan Consumer Sentiment Index rose more than expected in April to 82.6 after softening modestly in recent months. That result also marked the high point for the index since it reached 85.1 last July.
Consumer sentiment hasn’t moved meaningfully since spiking to 82.5 in December. Nonetheless, the upturn in consumer mood in April suggests that households have noted the recent uptick in economic data and are increasingly optimistic that the mid-winter soft patch is behind us.
While the survey doesn’t focus as directly on labor market conditions as the Conference Board’s Consumer Confidence Index, there’s no question that continued progress on the jobs front has provided a boost to household optimism. Back-to-back positive surprises in nonfarm payrolls in February and March and a sharp recent decline in jobless claims are clear signs of improvement.
In February, household disposable income grew by the most in six months – a potentially promising sign for workers. While not surprising given the persistently high jobless rate, a sustained increase in disposable income growth would be a welcome development for workers and could support stronger consumer spending.
The noteworthy gains in household wealth have also played a substantial role in driving the upward trend in consumer sentiment over the past year. The ongoing recovery in home prices and outstanding stock market returns of the past year have bolstered household balance sheets and have provided households with a bit more breathing room.
Looking at the big picture, it’s apparent that improvement in labor market conditions and the surge in household net worth in the past year have been positive developments. While the economy and capital markets started off the year on a softer note, there is a growing sense that the economy is gathering some momentum anew and the forward outlook is cause for renewed optimism.