US stocks rack up giant quarter

NEW YORK — US stocks closed out their best quarter in years Friday with record point-gains in the period for the S&P 500 and the Dow blue chips.

After another positive week confirming the first quarter’s bull run, the Dow Jones Industrial Average ended the three months up 8.1 percent at 13,212.04.

The broad-based S&P 500 had its best quarterly percent gain since 1998, adding 12 percent to 1,408.47, while the tech-centric Nasdaq surged a huge 18.7 percent.

The Dow’s point gain was a record 994.5 points, while the S&P added a benchmark 150.9 points.

The gains came more on the back of real corporate earnings growth than the lackluster economy, analysts said, and for that reason the markets were more likely to hold up.

“The rally is fully justified,” said analysts at Briefing.com. “The gains in the S&P 500 this year simply reflect the index gaining ground consistent with profit gains last year.”
“There was some serious catching up to do. The reduction of risk from Europe has allowed it to happen quickly.”

But the markets were entering the second quarter with caution – economists were divided about what recent data said about the pace of economic growth, while stock analysts warned of a slowdown in corporate profit gains.

And while Friday showed the eurozone coming together to strengthen its protections against more financial contagion, there was still worry about slowing growth there and in Asia.

The Federal Reserve itself has not helped – some policy makers suggested during the past two weeks that the central bank’s easy money policy has gone far enough, while Fed Chairman Ben Bernanke hinted repeatedly that it might not yet be enough.

“Even though the economy has improved significantly since the spring of 2009, it is still a mess,” said Chris Low at FTN Financial.

“As Bernanke said, the very fact that we are having a glass-half-full, glass-half-empty discussion means we only have half a glass.”

US consumer spending picked up pace in February, surging 0.8 percent over January, more than expected – though part of the reason was higher gasoline prices.

The spending outpaced income growth, a worry for Wells Fargo Securities economists.

“Low real income growth and the lowest savings rate since August 2009 could be headwinds for consumer spending in the months ahead,” they said.

But others saw little problem.

“Although real disposable income growth has been soft over the last three months, we expect this to pick up given the recent trends in employment growth,” said RDQ Economics.

Gregori Volokhine of broker Meeschaert New York also saw the glass half full in the data.

“When we see consumption going well in the United States, it is good for the entire American economy,” he told Agence France-Presse.

The way the debate plays out is crucial: if the economy is strengthening, the Fed could be forced to pull back on its forecast that its ultra-low interest rate policy will stay in place through 2014.

If it is still as weak as Bernanke seems to fret, then more efforts to push down interest rates could be in store.

Traders and analysts hope for more clarity from data releases in the coming week – but average forecasts suggest the picture will remain muddy.

On Monday the ISM will release its index on manufacturing activity for March, and on Wednesday its services sector index.

On Tuesday the Fed will release the minutes from its last meeting, with no surprises expected – the minutes should show they remain concerned about employment and the moribund housing sector.

Next Friday will see releases of data on job creation and the unemployment rate in March.

Consensus forecasts are for middling jobs numbers – which would mean the picture on economic growth could remain unclear for another week.