After reaching new all-time highs, the Dow Jones Industrial Average and the S&P 500 joined the NASDAQ in suffering the worst trading week of the year.

Some investors, already skeptical of the rally, chose to take profits.  Others sold on disappointing earnings reports, while others cited an economic “slowdown” in China as reason to bail.  What ever the catalyst, the sell-off took the major market averages all the way down to the 50-day moving averages, a support level which held despite a chaotic week. 

The terror attack in Boston rattled the financial markets and closed one of the nation’s top financial centers; home to a number of mutual funds, money managers, private equity and venture capital concerns.  The only upside to the unprecedented “shelter in place” order was that it happened on a Friday, giving the city, the nation and markets the weekend to recover. 

Investors returning this week will have more earnings reports to digest.  While 20% of the S&P 500 companies have reported earnings on target or better, revenues have disappointed.  Poor sales could weigh on stocks going forward, especially if they hurt second quarter earnings.  This week technology stocks report and numbers from Apple, Amazon, Netflix and Qualcomm may set the tone.  Other companies to watch: DuPont, 3M, Proctor and Gamble, Boeing, Lockheed Martin, Starbucks and YUM! Brands, home to KFC and Taco Bell. 

Global growth remains a concern.  If foreign economies slow, there will be less demand for our goods and services, slowing economic growth here.  The most recent Federal Reserve Beige book says U.S. economic growth is “moderate”.  The start of the phased-in sequester cuts are expected to slow domestic growth.  Couple slow domestic growth with slower demand from the Euro zone with its currency problems and a slowdown in China, and you could see a continuation of the uneven recovery instead of one that gains traction. 

One thing that isn’t a concern is inflation.  Despite the easy money policy of the Federal Reserve, inflationary pressures are muted.  There is no wage inflation with three people vying for every available job.  There is no demand inflation as consumers are not spending.  Gold, a traditional haven against inflation, suffered its fourth consecutive weekly decline, dropping more than $200 per ounce in the past month and now trading just above $1400/oz. 

Gold wasn’t the only commodity to lose ground. Crude oil lost more than 6% in the past four weeks, now trading at $88/bbl and giving drivers some relief at the pump.  Will it last into the summer driving season?  I wouldn’t bet on it. 

Finally, the economic calendar for the next two weeks has the potential to produce even more volatility.  This week starts with March existing and new home sales figures.  Low rates and stable prices continue to be supportive of the sector. March leading economic indicators and durable goods orders are due out mid-week, while the week ends with the first glance at first-quarter gross domestic product.  The pace of growth is expected to have quickened to 3%, but it remains a rear-view mirror indicator.  Investors may be more preoccupied with the future. 

The month of April ends with another Federal Reserve policy meeting and statement.  Expect lots of debate, both internal and external, about quantitative easing, inflation, economic growth and the labor market.  Most certainly they will have a good idea of what the April jobs report looks like. We’ll know when it’s released Friday, May 3rd.  Until then, fasten your seat belts 

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