Stocks gave up the day’s gains in the final hour of trading today, and the S&P 500 closed down 0.3%. Treasury bonds were little changed for the day, although the long end of the curve rallied late in the session. According to its “flash” report, Barclays U.S. bond market aggregate closed the day flat, and the TIPS composite gained a measly six basis points of return. While pending home sales were somewhat better than expected, today’s personal income and spending report was so-so – with incomes missing expectations and spending beating – particularly for those looking for a breakout in wages and salaries. The chart below shows the slow progress on the “earned” income front. Similar to the prior economic recovery (2001-03), the current recovery has lacked oomph in jobs and wages and salaries. But at about this stage, the 2001-03 expansion began to gather momentum. We will get some hint of that on Friday, when the March employment conditions are reported. Currently, the market expects 190,000-200,000 new jobs to have been created for the month. If so, then we may begin to see a bend up in the wage and salaries trend before long.
INVESTMENT OUTLOOK…The earthquake and tsunami in Japan, combined with Middle East unrest, have clouded the near-term prospects for equities. For the moment, though, developments in these areas seem to be heading in a more positive direction. Equally important, corporate earnings prospects remain positive, which provides some offset to the perceived increased risk of either rising inflation or economic slowdown that higher energy prices might ultimately produce. To our way of thinking, stocks are likely to generate better returns than bonds and bills over the coming 12-18 months.
Copyright © 2011 by Wright Investors’ Service, Inc.