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North America

May 2012

  • Earnings results for the first quarter are mixed.
  • Fed to continue with “highly accommodative” policy.
  • Equities slightly down over the month.

After driving US equity markets through an outstanding first quarter, investors paused to take stock of events in April. The new corporate earnings season and the intentions of the Federal Reserve left them with plenty to chew on as they did so.

As always, aluminium-artificer Alcoa was the first to report its Q1 results – this time with aplomb. The company’s results confounded expectations of a three-cents-a-share loss, instead posting a nine-cent profit. In mid-March, heavyweight financials JP Morgan and Wells Fargo also successfully exceeded analysts’ estimates. The former increased its dividend and instigated a $15 billion share-buyback programme.

Next came some of the major players in the technology sector. Google beat expectations, but its share price slumped after revelations that it had impeded an investigation into its data-collection practices. Meanwhile, IBM failed to impress the market with lower-than-expected revenue figures, despite beating earnings-per-share forecasts. Intel, which makes computer chips, also disappointed with a lacklustre report. But Apple’s first quarter proved fruitful – quarterly profits for the iPad maker nearly doubled. According to figures from Thomson Reuters, the results lifted earnings growth among S&P 500 companies for the first three months of 2012 to 6.9% from a pre-Apple 4.6%.

In policy news, minutes from the Fed’s March meeting, released in early April, showed disinclination towards a third round of quantitative easing. Later, the central bank’s “beige book” (a collection of anecdotal evidence on current economic conditions, gathered by the regional Fed banks), implied that the US economy is continuing to grow, albeit moderately. Increasing gas prices were mentioned in the report because of fears they could “limit discretionary spending in the months to come”. At the end of the month, Ben Bernanke, the Fed chairman, reiterated the central bank’s intentions to maintain a “highly accommodative stance of policy for the foreseeable future”. Interest rates, as expected, were left unchanged.

Overall, the S&P 500 index was down 0.63% in dollar, total return terms. Telecoms and utilities were the top-performing sectors, while financials and technology stocks lost the most ground.

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