In the second week of the quarter, further softening was shown by some of the U.S. data. This softening was consistent with the Wall Street Journal's surveyed economists, who expected the second quarter GDP to slip to 1.8% (from 3.1% in the 1st), but to recover in the final quarters of the year to generate a 2.5% annual increase in GDP. The EU remained soft, but EU Industrial Production numbers improved in February. In spite of the softness, equity markets rose and government bond markets fell; credit spreads narrowed enough to generate positive returns to the corporate, high yield, and emerging fixed income markets. The dollar weakened against the European and Canadian currencies, but the Yen fell more. Oil and metals commodity prices fell.

Perspective:

In the past few years, "sell in May and go away" appeared to be a reasonable equity investment strategy. The economy and the stock market heated up in the first part of the year and then petered out in the second half. What about this year? ISI's Ed Hyman said that this year is different. He cites three reasons: 1) Quantitative Easing by Central Banks across the globe, 2) the resurgence of U.S. housing, and 3) equity inflows into mutual funds. The combination of those three factors is compelling, but any or all of those factors could reverse and undermine his arguement. The Wall Street Journal's economist survey, cited above, projects strengthening of GDP after a softer second quarter in 2013; the WSJ survey also supports Hyman's arguement.

Personally, I am skeptical of "calander" investing rules supported only by anacdotal evidence, and not backed up by the rigor of acedemic research. I would continue to monitor the economic releases to see if the growth of the economy is sufficient to support sales and earnings growth. But, my background and interest is as a fundamentalist, not a technicial student of the economy and capital markets.

Economic Releases:

U.S. March Retail Sales reflected the softening of consumer demand due to the likely impact of higher payroll taxes, but also partially due to the unseasonably cold weather last month. Nonetheless, headline Retail Sales (blue in the chart) and core (less auto's) Retail Sales both dropped -0.4%. March's numbers were below expectations and took some of the bloom off of the February 1.0% flower.

The previous week the markets were surprised by the large increase in Initial Jobless Claims. This week, claims fell back to 346,000. The four-week average of claims (blue in the chart) still rose to 358,000. Continuing Claims (red in the chart) fell 12,000 to 3.079 million.

Other Economic Releases

The University of Michigan's Survey of Consumer Sentiment for mid-April unexpectedly dropped six points to 72.3. Inflationary pressures in the U.S. remained well contained, PPI fell -0.6% in March; without the more volatile components of food and energy, Core PPI rose +0.2% for an annual increase of 1.7%.

Europe started to show some signs of improvement in February. In the European Union, Industrial Production increased +0.4% in February; German Industrial Production increased +0.5%; France's +0.7%. UK's Industrial Production rose +1.0% and Manufacturing Output rose +0.8% in February.

China's GDP, Industrial Production and Retail Sales had not been released by this writing, but slight improvements are expected for those releases.

Equities Markets:

Equities rose across the board in spite of the softer economic data coming from the U.S. Both the Dow and S&P 500 hit record highs this week.

Bond Markets:

Government bond yields rose across the globe, but credit spreads narrowed, allowing corporate bond markets to post positive results even when comparable government markets posted losses.

Currencies & Commodities:

The U.S. dollar fell against the Pound, Euro, and Looney, but rose against the Yen. Oil and metals commodity prices fell, but natural gas prices rose on the week.

-----------------------------------------------------------------

Who is John Davidson?

John W. Davidson, CFA, started writing these Comments over a decade ago as a personal discipline when he was promoted to chief investment officer from portfolio manager.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts, and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income, and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he has appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services often quote his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and courses at the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a Naval Officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserves, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is treasurer of the Maine Conference of the United Church of Christ, serving on the executive committee and the coordinating council, the governing board of the conference. He is also on the investment committee of the Pen Bay Health Foundation.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.