Photo Credit:  Reuters/Brendan McDermid

STOCKS SUFFERED THEIR worst loss in three months even as new evidence makes overwhelmingly clear that the U.S. economy is healing and the worst recession in generations is well over.

It isn’t just that the economy grew 3.2% from January to March, and has expanded for three straight quarters, or that consumer spending jumped 3.6% and employers are hiring again. Companies as varied as Caterpillar (ticker: CAT), DuPont (DD), Whirlpool (WHR), UPS (UPS) and Visa (V) all told investors to expect stronger profits, and even Health Management Associates (HMA) said things are looking up for the ailing hospital industry.

The failure of good news to goad stocks to fresh highs marks a rare departure for a market that has rallied relentlessly for 12 of the last 14 months. There are even welcome signs, quite scarce lately, that our appetite for risk hasn’t become bottomless. Chip stocks fell last week, copper prices pulled back 5%, and a federal criminal probe of Goldman Sachs’ (GS) trading practices beat back bank and brokerage stocks. For the first time in a long time, selling accelerated during Friday’s final hour — a sign traders were paring their risk heading into a busy weekend featuring a horse race in Kentucky, a congregation of Warren Buffett fetishists in Omaha, and a [euro ]45 billion plan to contain Greece’s fiscal mess.

How stocks react this week to the anticipated bailout of Greece will offer a glimpse of the market’s mood. Bulls can take heart in the knowledge that selling hasn’t spurred more selling of late, and stocks haven’t fallen hard for two straight sessions in a while.

The nervous flight from Europe also steered investors toward U.S. debt, pushing the yield on benchmark 10-year treasuries below 3.7% and alleviating, momentarily, recent fears about rising interest rates.

The Dow Jones Industrial Average ended the week down 196 to 11009, and the 1.8% loss was its worst since late January. The Nasdaq Composite Index snapped an eight-week winning streak and closed down 69, or 2.7%, to 2461, while the Russell 2000 skidded 25, or 3.4%, to 717.

Despite the weak finish, stocks ended April with broad gains totaling 1.4% for the Dow, 1.5% for the S&P 500, 2.6% for the NASDAQ and 5.6% for the Russell. But dry powder in money-market mutual funds shrank to $2.87 trillion from nearly $4 trillion in early 2009, just before this bull run began.

In the coming weeks, buyers’ resolve might be tested by lingering unemployment and a wobbly real-estate market propped up by government incentives and artificially low mortgage rates. Last week, the Federal Reserve upgraded its assessment of economic prospects but promised to hold borrowing costs down for — all together now — “an extended period.” And as long as savers are rewarded with near-zero interest rates and risk takers protected by bailouts, all the money in the markets will need some place to go, and stocks will remain as good a bet as any (Source: Barrons Online).

My Pittsburgh teams – the Steelers, The Penguins and the lowly Pirates.  I follow all three.  Each spring I get my hopes up that some of the Pirates recently promoted AAA players will come up to the Bigs and become an instant star.  It did not take long to dash my hopes this year.  Some of the Pirates losses look more like an NFL score:  17 – 3 and 20 – 0 which both occurred in the same series against the Brewers.  Well, at least I still have my PENS who have a good chance to make it to the Stanley Cup finals again this year.

“Your Financial Choices” airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®.  This week, Your Financial Choices, 6 to 7 pm: Host Laurie Siebert, CPA, CFP® be joined by guest, Rod Young, CPA, CFP and financial advisor with Valley National Financial Advisors for a discussion on 401k plans.  What do you need to know about your 401k before you take that job, while you have the job and when you leave the job?

Tune in on Wednesdays at 6 on WDIY 88.1 FM (93.7 FM WEST, 93.9 FM EAST) or online at www.wdiy.org

1. Heart operation performed with robotic arm – The world’s first heart operation to use a remote-controlled robotic arm has been carried out at Glenfield Hospital in Leicester, U.K. The technique, designed to cure irregular heartbeats, involved using a Remote Catheter Manipulation System (RCMS) to steer catheters into blood vessels at the top of the groin and into the heart. The procedure, which can take over six hours, is currently carried out by surgeons who risk being exposed to radiation during surgery.  (Source: The Engineer     Photo Credit:  University of Leicester)

2. Stanford study first to analyze individual’s genome for risk of diseases, responses to treatment-  For the first time, researchers have used a healthy person’s complete genome sequence to predict his risk for dozens of diseases and how he will respond to several common medications. The risk analysis, from the Stanford University School of Medicine, also incorporates more-traditional information such as a patient’s age and gender and other clinical measurements. The resulting, easy-to-use, cumulative risk report will likely catapult the use of such data out of the lab and into the waiting room of average physicians within the next decade, say the scientists (Source: EurekAlert!)

3. New Way To Guide A Car: With Your Eyes, Not Hands – German researchers have developed a new technology, “eyeDriver,” that lets drivers steer cars going 31 mph (50 kph) using only their eyes.  (Source: NPR)

“Courage is about doing what you’re afraid to do. There can be no courage unless you’re scared.”

–Eddie Rickenbacker, American fighter ace in WWI, automotive designer, race car driver, air transportation pioneer, longtime head of Eastern Airlines

U.S. Stocks and Foreign stocks declined but Bonds rose.  During the last 12 months, STOCKS have substantially outperformed bonds. 

The Numbers

Returns through 4-30-2010     1-week         Y-T-D         1-Year         3-Years         5-Years     10-Years

Bonds- BarCap 
Aggregate Index                       .6                  2.8            8.3                6.3                 5.4               6.4

US Stocks-
Standard & Poor’s 500            -2.5                7.1            38.8             – 5.1                 2.6             -.2

Foreign Stocks-
MS EAFE Developed
Countries                                -1.9                -1.9           30.8             -11.5                1.2             -.7

Source: Morningstar Workstation. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  Three, five and ten year returns are annualized.  Assumes dividends are not reinvested.

Question:   How many years back can the IRS audit my tax returns?

Answer:  It depends.  First, there is no limitation if the taxpayer fails to file a tax return or commits fraud.  6 years is the answer for any return that omits 25% of more of the taxpayer’s income.  Absent the situations in the two previous sentences, 3 years is generally the answer.

Feel free to contact me if you or someone you know has this type of situation.  Tax laws can be tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.

Last week Harrisburg announced it will not make a payment on a bond the city guaranteed.  This may lead to Harrisburg declaring bankruptcy.   I am concerned that municipal bond investors will begin to ask, “if Harrisburg, the state capitol of Pennsylvania, can go bankrupt, then we must consider all Pennsylvania municipal bonds as having a higher level of risk”.  This thinking will result in Pennsylvania bonds paying higher interest rates than other states.  Those investors who already own Pennsylvania municipal bonds will experience a drop in value of their bonds.

The American economy is expanding at a healthy rate, the jobless claims have declined, consumer confidence has rebounded, the FED is keeping interest rates low and has promised to continue this low rate environment, and corporate profits have surprised on the upside.  This is the recipe for a strong stock market.