Stocks and other risk assets enjoyed healthy gains in the first quarter of 2012 as the U.S. economy continues to improve and the EU debt woes have eased materially. For the quarter, the Nasdaq composite surged nearly 19% which was its strongest quarter since 1991! The benchmark S&P 500 jumped nearly 12% or its best quarter sine 1998! Meanwhile, the Dow Jones Industrial Average rose 8%. From our point of view, the bulls remain in control of this market as long as the benchmark S&P 500 stays above its 50 DMA line.

U.S. MFG Data Lifts Stocks:

Risk assets rallied on the first trading day of the second quarter after the latest round of economic data was mixed from across the globe. The official Chinese manufacturing data topped estimates but the HSBC manufacturing survey missed. U.S. mfg data also topped estimates which bodes well for the ongoing economic recovery. The ISM said its mfg index rose to 53.4 in March. However, not all the news was bullish. The Commerce Department said construction spending slid -1.1% in February which was the largest decline in 7-months and missed the Street’s estimate for a gain of +0.6%. The big miss came from Europe. The euro zone’s manufacturing sector fell for an eight month and at a faster pace in March which bodes poorly for the EU economy.  It was also worrisome to see that the euro-zone’s unemployment rate vaulted to its highest level in almost 15 years! The fact that stocks rallied on the news bodes well for this rally and illustrates that the bulls are clearly in control at this point.

Market Outlook- Confirmed Rally