This week, positive earnings surprises, the Federal Reserve chair's dovish testimony and economic releases remained on the positive side of the global economic balance sheet; geopolitical risk remained on the negative side. High valuation weighed heavily on equity prices; most American and Asian markets finished lower while European markets finished higher on the week. The yield curve steepened as short rates fell on the dovish testimony while the longer rates rose. The U.S. dollar was mixed and most commodity prices were lower on the week.

Perspective:

Today is the celebration of Mother’s Day. It would only be fitting to pay tribute to my own mother, who at 93 still manages her own investments and makes her own decisions. She and I often have different views on investing; she likes to point out that she has done pretty well with her approach. And, she has. But this year, my own view of motherhood has expanded with the birth of our granddaughter. Our daughter has become a mother and my wife spent much of last week helping out our daughter and her new baby. The best way to honor mothers may be to tap into their strength and wisdom.

Economic Releases:

Fed Chair Janet Yellen testified before Congress this week. She reassured the legislators that the Fed would continue an accommodative monetary policy in the environment of slack in the economy and low inflation. She said that the first-quarter slowdown was a temporary, weather-related event and said that she expects a rebound in the second quarter. She said that the labor market conditions were far from satisfactory. Yet, the chart here of Claims for Unemployment have improved significantly since the recession. Initial Claims dropped to 319,000 in the week of May 3; the four-week average of Claims (blue in the chart) rose to 324,750; Continuing Claims (red in the chart) fell 76,000 to 2.685 million; the unemployment rate for insured workers has fallen to a recovery low of 2.0%

Other Economic Releases

The Institute for Supply Management Purchasing Managers' Index for Services in the U.S. rose 2 points to 55.2 in April; the Markit PMI for Services slipped 3 ticks to 55.0; both measures put U.S. non-Manufacturing well into the expansion zone, above 50.

The European Central Bank met this week and announced no change in monetary policy even though some ECB watchers had expected some additional monetary easing. Similarly, the Bank of England met this week and made no change in the Bank Rate (0.50%) or quantitative easing (375 billiion pounds)

The Markit EU Composite and Services PMI's both rose to 54.0 and 53.1 respectively in April. Germany's Markit Composite and Services PMI's rose to 56.1 and 54.7 respectively. France's Markit Composite and Services PMI's each fell a point to 50.6 and 50.4 respectively. the UK's CIPS/PMI for Services rose a point to 58.7 in April. These all signal that Purchasing Managers in Europe saw expansion in their company's activity in April.

Asia's PMI's were not as positive as those in Europe. In China, the HSBC PMI Composite rose two ticks to 49.5 while the Services PMI fell a half-point to 51.4. Japan's Composite and Services PMI's both fell six points to 46.3 and 46.4, well into the contraction zone.

Equities Markets:

Positive earnings reports were balanced against heightened geopolitical risk and high valuation to generate mixed results for equities around the globe. Factset reported that 75% of the 454 companies in the S&P 500 have reported positive earnings surprises for the first quarter; they calculate the forward P/E ratio of 15.2, above the five-year average of 13.2 and 10-year average of 13.8.

Bond Markets:

In the wake of Yellen's dovish testimony, the yield curve steepened as yields fell for shorter maturity notes and rose for longer maturity bonds. Government bond yields were otherwise mixed across the globe. Credit spreads for investment grade and high yield bonds were unchanged, but those for emerging market credits fell.

Currencies & Commodities:

The U.S. dollar fell against the Yen and Looney, but rose against the European currencies. WTI rose, but other energy and metals commodity prices fell on the week.