When the closing bell rang on Friday the 30th, the Dow and the S&P closed out

th eir best first-quarter performance since 1998 and the Nasdaq notched its best pe rformance since 1991. The Standard & Poor s 500 (S&P 500) is an unmanaged group of securities considered t o be representative of the stock market in general. Chart is for illustration pu rposes only. Performance excludes reinvested dividends. Past performance is no g uarantee of future results. Index is unmanaged and cannot be invested into direc tly. Source: Yahoo! Finance.

After a string of declines last week, the markets showed modest gains on Friday amidst economic reports indicating that U.S. consumer spending and consumer sent iment are still on the rise. Consumer sentiment rose in February by the highest level in seven months and March consumer confidence bounced to its highest level in more than a year. U.S. Treasuries fell as investors left the refuge of debt to participate in the market rally.[1] While we re pleased at the good economic news and the close of a strong quarter for equities, we re also paying close attention to reports due to be released later this week which include data on manufacturing and construction spending, reports on the labor market, and Fed FOMC meeting notes. With market optimism so high, any mixed news could leave stocks vulnerable to a retreat. If a pullback does occur, many analysts believe that it will be a healthy sign of reduced investor exuber ance.[2] However, a retreat is certainly not a given. Historically speaking, the S&P 500 has only gained more than 10% in the first quarter on eight other occas ions since 1945, and the market went on to gain in the second quarter six of tho se eight years.[3] We re thankful to see that the picture in Europe has improved somewhat during the fi rst quarter, and the market has rewarded this improvement. Though a permanent so lution is still needed, the European Central Bank has managed to avert a liquidi ty crisis for now. We look forward to further steps being taken to address the u nderlying solvency issues that still exist. Rising gas prices continue to be an area of concern, as any further pinch at the pump could lead to decreases in consumer spending, slower retail sales, reduced manufacturing, cuts in hiring, and ultimately to a slower moving economy (Likel y in that order). This is clearly not something we want to see. Oil prices and gas prices by extension are predominantly affected by supply and demand. And with onl y 2 million barrels a day of effective excess capacity, versus global oil demand of 75 million barrels a day, it is easy to see why prices remain elevated.[4] T ensions over Iran exacerbate this problem, as any escalation there could easily lead to dramatic spikes in prices here. On the other hand, if the Iran situation cools off, we could also see oil prices fall. As we have mentioned before, oil prices teeter delicately on a combination of supply issues and speculation. Comments made by Federal Reserve Chairman Ben Bernanke on Monday suggested that the Fed would like to see a more rapid expansion in the economy, and it s willing to back up its words with additional quantitative easing.[5] Whether or not that w ould be a good thing is heavily debated, and there are extremely vocal proponent s on both sides of the issue. We ll reserve our thoughts on that matter for a future edition. Either way, if we continue to see solid economic reports and improveme nt in the global economic situation, the Fed will probably not take further acti on. The important thing to keep in mind is that the long-term performance of your in vestments is not tied to short-term market movements. All the underlying signs p oint to a continued economic recovery, and we are closely monitoring available i

nformation as we chart our course for the next quarter and beyond.