Growing belief among investors that the worst may be over This market recap for the period ending April 30 was provided by Scott Olson, Investment Relations In what may be viewed as budding confidence that economic conditions may be close to bottoming and the deceleration in corporate profit growth is not as bad as had been feared, investors voted with their money, making April the first month of monthly stock market gains after five consecutive months of losses. While many issues continue to hang over the market, including rising inflation, slowing consumer spending and housing market woes that do not seem to have an end in sight, investors appear to be looking past the near-term concerns toward improving conditions ahead. Stocks see respectable gains After briefly surpassing the 13,000 level during the trading session on the final day of the month, the Dow Jones Industrial Average retreated slightly but closed out the month with a respectable 4.5 percent gain. The broad large-company S&P 500 Index rose 4.8 percent, posting its best monthly performance since late 2003. Small-cap and technology-related stocks also enjoyed support from buyers during the month, with the Russell 2000 Index and the Nasdaq Composite Index rising 4.1 percent and 5.9 percent, respectively. Even though the U.S. dollar began strengthening at the end of April, foreign equities generated solid returns as well, with the MSCI EAFE Index of developed economy stocks rising 5.6 percent on the month and the MSCI Emerging Markets Index posting an even stronger 8.1 percent return as investors became more comfortable investing in these more volatile areas. Niche asset classes results are mixed Returns were mixed among some of the niche asset classes in April. Commercial real estate continued to rebound from its severe sell-off over the latter part of 2007 and into early 2008, with real estate investment trust oriented funds gaining 5.5 percent as measured by the Morningstar Specialty Real Estate category. Financial stocks also firmed during the month, as did natural resources funds, which benefited from the continued rise in crude oil prices. On the other hand, gold remained under pressure, falling to approximately $880 per ounce after peaking at just over $1,000 per ounce in March. The slowing economy and strengthening dollar have begun to weigh on dollar-denominated crude oil prices in recent trading sessions, with oil closing out the month at approximately $113 per barrel after reaching an all-time high of just under $120 per barrel on April 28. Fixed income performance reflects increased investor confidence Performance within the fixed income categories also reflected an increase in investor risk-taking, with segments that had been under pressure rebounding in April. High yield bonds and floating rate bank loans were among the better performing categories. Tax-exempt municipal bonds also continued to rally from the dislocations seen in late February. U.S. Treasuries, which had benefited greatly from the intense “flight to quality” by investors over the past several months, experienced selling pressure during the month, with many government bond sectors posting negative returns. As investors anticipated the Fed’s recent rate cut and the likelihood that further cuts were near an end, yields began to move higher. The yield curve began to flatten, with shorter-duration yields rising more than those of longer-dated bonds. The yield on the 5-Year treasury climbed from 2.47 percent at the end of March to 3.03 percent at the end of April; the widely-watched benchmark 10-Year Note yield rose from 3.43 percent to 3.76 percent over the same period and the 30-Year Bond saw an increase from 4.31 percent to 4.50 percent during April. Fed trims interest rates again The Federal Reserve has remained in the financial news nearly daily with investors focusing on commentary that could provide clues about future monetary policy actions. As was widely anticipated, the Fed trimmed its target for short-term interest rates yet again on the last day of the month, cutting its benchmark fed funds rate by a quarter percentage point to 2 percent. This latest rate cut was the seventh reduction since September 2007 when the fed funds rate stood at 5.25 percent. In a somewhat encouraging sign, the Fed statement that accompanied the latest rate cut suggested that while economic conditions remain weak and inflationary pressures exist, the series of rate cuts and other lending efforts undertaken should promote at least modest economic growth going forward. In fact, a report from the Commerce Department showed that the U.S. economy grew at a faster-than-expected 0.6 percent annualized pace in the first quarter despite sluggish consumer spending. Employment data has been disappointing in general, though a late-April survey by ADP Employer Services indicated that employers added 10,000 jobs during the month. Employment data, gains in disposable income are key focus areas Looking ahead, investors will continue to scrutinize economic reports for signs of improvement, or at least stabilization. Employment data, though a lagging indicator, will remain a key focus as will gains in disposable income and reports on how Americans are spending their government-issued stimulus checks. Coupled with food and energy price movements, these areas are closely tied to consumer spending which represents approximately two-thirds of the domestic economy. Further easing of the credit crunch remains a critical factor. Signs of improvement in the housing market would likely encourage many investors, though consensus expectations are that a recovery here will take some time. Until clear signs regarding the direction of the economy emerge, investors should be prepared for continued market volatility and ensure that their investment portfolios are well-diversified and aligned with their financial goals. 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