April Market Commentary

US stocks continued their surge in April posting their best four month start to a year since 1987 and reaching new record highs.  The gains have been driven by a more accommodative Fed, corporate earnings topping expectations, solid economic news, and expectations of a trade agreement being reached between the US and China.  With half of S&P 500 companies reporting results, 76% have beat analysts’ forecasts, and profit is now expected to contract 1.6% from a year earlier, less than the 4% analysts had expected.  Economic news showed a more robust US economy with 196,000 jobs added in March, topping expectations, the unemployment rate remained at 3.8% and wage growth eased concerns about inflation.  Manufacturing, durable goods orders, retail sales and new home sales all outpaced expectations.  The first reading on first quarter Gross Domestic Product (GDP) showed the US economy grew at a better than expected rate of 3.2%.  In April, US stocks jumped 3.99% and have soared 18.60% since the start of the year.

Foreign stocks posted strong gains on an improved economic outlook and supportive central bank comments.  China posted strong economic numbers with manufacturing activity hitting a six-month high, a service sector reading reaching a 14-month high, and first quarter GDP growth topping expectations by holding steady at 6.4%.  In Europe, the eurozone posted a 1.5% GDP growth rate in the first quarter, picking up speed from the fourth quarter.  In addition, eurozone service sector activity hit its strongest growth rate since November and in Germany industrial output posted a solid gain.  Providing additional support for stocks, European Central Bank (ECB) President Draghi indicated the bank could take additional action if the economic picture for Europe worsened.  The EU gave the UK until October 31st to come up with a plan to leave the country bloc.  Emerging markets trailed developed markets in April and for the year to date.  International stocks rose 2.67% in April and have climbed 13.20% for the year to date.

Bonds were flat in April as interest rates rose from their lowest level of the year.  Solid economic news spurred investors to have a more optimistic view of the economy long term, driving the increase in interest rates.  Minutes from the Fed’s March meeting showed that the rate setting body had greater conviction that the best course of action was to stand pat on the Fed Funds rate for the time being.  The 10-year Treasury yield rose to finish the month at 2.51%, up from 2.41% to start April.  For the month, credit bonds were the top performing sector and shorter-term bonds topped longer-term bonds.  The broad bond market was flat in April, edging up 0.03%, but has gained 2.97% for the year to date.