Following the S&P 500 Index’s best first quarter since 1998, April reintroduced volatility to the market, with the S&P 500 finishing the month lower on disappointing labor market news and reignited European concerns. As such, news flow in April has brought investor sentiment back towards our slow growth base case. We expect periods of stress to continue throughout 2012. The European debt crisis dynamics will likely result in negative growth in the periphery, and near flat growth in the core. The United Kingdom and Spain have slipped into recessions. We are more positive on emerging markets as their tightening cycles have largely hit their peaks, with most emerging countries either on “hold” or cutting rates. However, we believe a growth deceleration will continue in these markets as a carry-over from tightening in the first half of 2012, though the new easier policy stance should begin to work through these economies leading to a better second half. U.S. Economic Overview », Global Economic Overview »

The Economic Clock moved forward slightly to 9:15 this month, suggesting that we are still in the later stages of the economic cycle. Although this is concerning and highlights the risks of the current environment, we believe that ongoing oscillations in this region of the Clock are likely given our outlook of slow growth and the likelihood of greater economic volatility. Due to a migration of our economic indicators towards neutral, as well as neutral readings in our valuation and sentiment indicators, we recently adjusted our equity exposure to neutral through a decrease in our U.S. Large Cap Stock exposure, though we remain overweight this segment. We continue to underweight U.S. Mid Cap and Small Cap stocks, as well as Emerging Markets. On the fixed income side, we remain underweight to U.S. Treasuries and overweight spread products, particularly Corporate Bonds. Economic Clock », Top-Down Asset Allocation Recommendations »

The double-digit returns in the U.S. equity market in the first quarter were due in part to the strong performance of the Financials sector. The S&P 500 Financials sector recorded its third best quarter in the past 10 years on both an absolute and relative basis. At a time when some investors may be tempted to increase their exposure to Financials, this month’s Feature Article, Assessing the Long-Term Investment Case for the Financials Sector, advises a more cautious approach rooted in an understanding of both the role that the sector plays in the economy and its typical performance over full market cycles. Feature Article »

Our Country in Focus this month takes a deeper look at Australia, an advanced, resource-rich, and well-educated nation, home to one of the world’s oldest democracies. The country is the world’s largest exporter of coal, has 40% of the world’s recoverable uranium, and is on the course to become the second largest exporter of liquefied natural gas by 2015. However, Australia is becoming more dependent on oil imports, which makes the country more sensitive to changes in the world oil supply. Australia has a very open trade policy which has contributed positively to productivity and economic growth. Foreign Direct Investment plays an important role in the economy, and the country is an attractive destination for investors partly because of the favorable regulatory environment and transparent investment laws. Amazingly, the country has not experienced a period of negative growth since 1991. The resource mining boom is still very much contributing to the economic growth of the economy. Though the population is wealthy, the consumers have one of the highest debt-to-disposable income ratios in the world, at 150%. This gives caution to the consumer story going forward. The stock market is dominated by Commodity Materials and Financials. The Australian stock market tends to be very pro-cyclical given its heavy commodity and financial exposure. However, valuations are generally attractive today relative to their own history and other global markets. Country in Focus »