Market Commentary - May 1, 2012

The monthly winning streak for stocks in the U.S. ended at five, as prices

ended April with a modest loss of slightly less than one percent. The

same influences that drove the S&P 500 25 percent higher between last

September and the end of March have turned somewhat uncertain,

resulting in a period of modest consolidation. Recently softer economic

data in both the U.S. and China, and renewed uncertainty in European

sovereign debt markets combined to push stocks lower in the first half of

April. And, despite a rally over the past two weeks, stocks were unable to

extend their climb to a sixth straight month.

According to the advance estimate the U.S. economy grew at just a 2.2

percent annualized rate in the first quarter, well below consensus

expectations in the vicinity of 2.5 percent, and some estimates that were

as high as 3.0 percent. The bright spot was consumer spending,

particularly on motor vehicles. Also of note was an almost 20 percent

increase in residential construction that contributed 0.4 percent to the

quarter’s growth. On the other hand, notably weaker was private

investment in structures, and government spending on defense. In some

respects, this report is reflective of the way this recovery might extend

into the next few years. That is, growth coming from certain sectors, but

not all at the same time, resulting in below-trend growth. Especially

uncertain is the degree to which the federal government’s contribution

will evolve, as our military commitment slows in Iraq and Afghanistan

and Congress eventually addresses our long-term budget deficit. Also

uncertain is the contribution that inventory accumulation will make

going forward, a strong point in each of the last two quarters, as recent

evidence has suggested a moderation in new factory orders. And recently

weaker data regarding the strength of the labor market has even raised

questions about the sustainability of the pace of consumer spending.

Markets are searching for direction while these questions are being

considered. Not enough evidence is yet available to conclude that a new

trend toward slower growth is at hand, nor that bond yields in Europe

will move inexorably higher. Earnings season has played a supporting

role, but not much credit is being given to reports that exceed lowered

expectations, while misses are being punished. In such an environment

expect asset values to rise and fall in reaction to the daily flow of

economic data, until a trend is firmly established. That will likely take at

least several more weeks. In the meantime, the sectors that were the

leaders throughout much of the five month rally were the laggards in

April. Financials, technology, industrials and materials were the worst

performers, while telecom and utilities were the strongest. Notably,

consumer discretionary stocks were strong in April, just as they have

been throughout the rally, reflective of the strength in consumer

spending since the fall.

Bond yields drifted lower throughout the month as risk appetites

receded. The yield on the ten-year note started the month at 2.21 percent

and ended at 1.92. The Merrill Lynch High Yield Master II index yield

also fell, but by less, dropping to 7.56 from 7.69 percent. Copper prices

mirrored the path traced by equities during the month, falling

throughout the first two weeks, only to recover in the last two weeks to

end the month roughly flat.

Perhaps the most interesting asset price movement during the month

has been the path of natural gas. Dating back to June 30 of last year, the

front-end gas contract was trading at $4.37. By April 19, it was trading at

$1.91. Overly abundant supply as a result of improved drilling

techniques and limited distribution capability has sharply depressed the

price of gas, especially in relation to crude oil. Normally trading at a

ratio of 10 to 1, the price of a barrel of domestic crude oil has more

recently been trading at ratio of 50 to 1. Value investors with a longerterm

investment horizon have been attracted to this disparity, as have

price is higher by 20 percent. The futures market anticipates that the

price will rise to $3.20 by year-end.

The remainder of this week is full of the kinds of economic reports that

have the capacity to buffet markets. The ISM reports on both

manufacturing and non-manufacturing are expected to soften modestly

from last month, as are factory orders. But the most significant report is,

of course, the April employment report on Friday. After the

disappointing result in March, the April report will be eagerly

anticipated to see if it confirms the slower pace of job growth. The

consensus is looking for job growth of 162,000 which would be mildly

disappointing, but not so weak to result in a market rout. But if the total

is closer to the March result, stocks could be under pressure.

Important Disclosures:

The views expressed are as of the date given, may change as market or

other conditions change, and may differ from views expressed by other

Ameriprise Financial associates or affiliates. Actual investments or

investment decisions made by Ameriprise Financial and its affiliates,

whether for its own account or on behalf of clients, will not necessarily

reflect the views expressed. This information is not intended to provide

investment advice and does not account for individual investor

circumstances. Investment decisions should always be made based on

an investor's specific financial needs, objectives, goals, time horizon, and

risk tolerance.

The S&P 500 is an index containing the stocks of 500 large-cap

corporations, most of which are American. The index is the most notable

of the many indices owned and maintained by Standard & Poor's, a

division of McGraw-Hill.

The Bank of America Merrill Lynch High-Yield Bond Master II Index is

an unmanaged index that tracks the performance of below investment

grade U.S. dollar-denominated corporate bonds publicly issued in the

U.S. domestic market.

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