US Presidential Election Half-Time Report

US stocks traded in a narrow range for the month of April, closing with a loss of 0.63% in the S&P 500. Earnings and revenue growth were moderate but positive for Q1 2012, and are expected to accelerate as the year progresses. S&P 500 earnings are at record levels, and interest rates and inflation remain restrained, so US stocks remain 15% below fair value despite gains of 120% since March 2009. Average investors don't care, pulling $400 billion out of stock mutual funds over the last 4 years.

The US employment situation is improving, barely. Job growth had accelerated to about 3 million/year over the winter but now barely exceeds a rate of 1 million/year. 13 million Americans are unemployed. The US economy produces goods and services at record levels, but with 5 million fewer workers than in 2007. Productivity gains are good, but the creation of a permanent underclass of unemployed would be disastrous for the US. Such conditions have prevailed in Europe for 30 years, but the Europeans are willing to devote much more resources to a "social safety net." We have seen no reasonable solutions to improve the employment situation around in the US.

Politics

As we forecast last summer and again last November, Romney was confirmed in April as the Republican nominee for President. As we also wrote in November, "Obama is deeply unpopular, unemployment is high, economic growth is minimal and 73% of Americans think that the country in on the wrong track. Despite all that, we don't think that the Republicans offer a sufficiently compelling alternative in Romney, and Obama will be reelected."

Read the entire commentary here.