For the first time in four weeks the market lost ground.  For the week, the end results were as follows:  A 1.3% loss for the NASDAQ, a 1.8% decline for the S&P 500 and a 2.4% drop for the Dow.  Oil dominated the headlines throughout the week with crude futures closing at new record highs each day.  The final settlement of $126.13 per barrel marked an 8.4% gain for the week. 

The major market indexes had trouble getting above their 200 day moving averages.  After three up weeks in a row, a slight decline on less volume is not necessarily a bad thing.

The financial sector had a tough week, falling 6.3%.  Citigroup announced Friday that it would be pursuing a plan to sell $400 billion in non-core assets over the next two to three years. 

As far as economic data this week it was data light, yet the majority of releases provided relatively good news.  The ISM Services, Q1 Productivity, Initial Claims, and Trade Balance reports were all better than expected.  Pending home sales for March fell 1.0%, which was in-line with estimates.  Consumer credit in March however expanded to $15.3 billion from $6.5 billion in February.  That looks people are borrowing on their credit cards to finance their lifestyle!

With the spike in oil prices and the jump in consumer borrowing, concerns persist about the state of the average American.  The April same-store sales results reported Thursday showed consumers are still alive.  It is yet to be determined if they are alive only due to increasing their credit card debt!

Another point on the Productivity data is that while productivity increased to an annual rate of 2.2% in the first quarter, up from 1.8% in the fourth quarter of 2007. Digging deeper we find that productivity numbers are comprised of two components:  Output and aggregate hours worked.  Firms have cut back on employment and have reduced hours worked.  So this has raised productivity even as output has declined.

The Federal Reserve's quarterly Senior Loan Officer Survey set the tone at the start of the week. The report confirmed what many have already been saying:  The credit crunch has led to tighter lending standards across the board, including commercial and industrial mortgages for prime, the seemingly defunct subprime market, and other consumer loans.  Even though the Fed has slashed the federal funds rate by 3.25% and taken aggressive steps to offer loans to wide range of financial institutions, it is still impinging on credit availability in a meaningful way.  The extension of credit to our Federal Government for the rising deficits, and the business community, as well as consumer credit extension, remains a key consideration when evaluating the economic outlook going forward.

Nowhere does our economic outlook more dire than the long term Federal Deficit!  The Bush administration frequently notes that although the deficit is high, it's low in historical terms as a percentage of the total economy.  As of April 2008, the total U.S. federal debt was approximately $9.5 trillion ^[1], or $31,100 per U.S. resident, (not necessarily meaning that they are a taxpayer). About half of this debt is held by foreign governments that we depend on to lend us money.  However in addition, if you add in the unfunded Medicaid and Social Security promises that have already been pledged, this figure rises to a total of $59.1 trillion.  How his get funded going forward is the long term dilemma for the markets.

For now I am still optimistic through the end of the year!  It is critical to invest in the right sectors today to position yourself for the future. 

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