Market Roars Ahead in First Quarter

Wowee zowee! The Wall Street Journal reported that some records were set yesterday as the Dow Jones Industrial Average posted its single biggest first quarter point gain in history. The broader indices are also steaming, with the S&P 500 up 12% so far in 2012 and the Nasdaq Composite showing its best first three months in over 20 years being up 19%. And percentage wise the Dow had its best opening quarter since 1998. The Journal also noted that stocks worldwide are surging “from Tokyo to Mumbai and Frankfurt all posted their strongest quarterly gains in several years.”

What’s part of the drive? Yes, junk bonds are back. The article indicates that more junk bonds were sold in the first quarter than in any time since at least 1980. These are high rate bonds sold by companies that are not top-rated, so they are riskier but provide a better return than the current very low interest rates on treasury bills and top company debt. The message: risk is back, and people are not as much concerned about the financial world coming to an end. This is a good thing, so long as it doesn’t get out of control.

The Dow needs to go up only another 7% to get back to the last high it achieved back in October 2007. But the conundrum remains: our economy remains beleaguered, unemployment remains high, real estate remains in the toilet, interest rates remain at record lows, US debt is at a staggering high, bank lending remains anemic, yet the market remains strong. As the market is a leading indicator, let’s hope it is telling us that good times are ahead.

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