MARKET AND ECONOMIC OUTLOOK

"Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other". - Robert Orben

The Presidential election is nearly six months away. The election process would not be complete without a little funding controversy. Funding has long been a sticky campaign issue. Issues regarding Super PACs (Political Action Committees) and funding have come to light again recently. Super PACs are different from regular PACs in that the former are not able to directly contribute to a campaign but can support a candidate independently. The concern is that Super PACs could be hiding shared efforts between campaigns and political groups, which are considered illegal. Proving collaborative efforts actually take place is where things get murky.

The first quarter earnings reports for 2012 are well underway. Prior to the actual reporting, expectations became incrementally more positive, given the three consecutive months of market upside. Now that a majority of prominent companies have reported, it is fair to say that "the first quarter earnings season has turned out to be much stronger relative to preseason expectations," according to Zach's Investment Research. Most of the growth reported has been via revenue gains.

The Federal Reserve (FED) meeting this month provided relatively little new information for investors and was essentially considered a non-event as far as the market was concerned. The FED did increase the Gross Domestic Product (GDP) 2012 target range slightly by 10 basis points to 2.4% - 2.9%, but then decreased the 2013 GDP estimates by 10 basis points to 2.7% - 3.1%. Longer term GDP growth is still expected to be in the range of 2.3% - 2.6% growth. FED Chairman Bernanke indicated the door was still open for additional easing plans in the future, if necessary. The FED statement released after the meeting revealed some renewed concerns about domestic economic growth and the job market. "The committee expects economic growth to remain moderate over coming quarters and then pick up gradually."

The FED also shared that the unemployment rate "has declined but remains elevated," a slightly more conservative stance from last month. Recently, the unemployment data has been disappointing after a nice run over the last few months. After a stronger than expected job creation number in February, as well as upward revised data for January and December 2011, the change in non-farm payrolls for March and April were lower than the street expected and under 200,000 for the first time since last November. The private sector employment data for April was lower than hoped, and reported the first dip in manufacturing payrolls since last year. The drop in manufacturing payrolls was surprising, especially given the recent encouraging reports from the Institute for Supply Management.

The FED expressed apprehension about the condition of international economies stating that they "continue to pose significant downside risks to the (U.S.) economic outlook." Following a series of credit downgrades, Spain became the most recent Euro-zone country to declare a recession; preceded by Belgium, Greece, Ireland, Italy, the Netherlands, Portugal and Slovenia.

At the beginning of May, the Dow Jones Industrial Average (DJIA) surpassed levels not seen since December 2007, and other key indices such as the S&P 500 and NASDAQ have prior highs in reach. The market continues to power ahead impressively. However, the month of May kicks off what has historically been a seasonally unfavorable performance period, lasting through November. As such, we remain cautiously optimistic, monitoring market internals closely.