April Market Recap
May 3, 2021
The buy-the-dip mentality that has become ever more popular among investors in these bullish of times is getting more difficult. The dips have disappeared.
Out of 21 trading days in April, the S&P 500 rose 12 times. Of the nine “down days,” none approached as much as a 1% drop and only three recorded losses of at least 0.5%. Only once did the S&P fall on consecutive days (April 19-20).
It all added up to gains north of 5%, while the NASDAQ finished with similar monthly returns (for a change). The Dow Jones Industrial Average rose about half as much. All the major US stock indices hit record highs in April before trading mostly sideways in the final two weeks.
Consumer Discretionary stocks booked the largest gains of any S&P sector, rising 8.8%. Communication Services (+7.9%) and Real Estate (+7.1%) also posted large increases. Energy (-1.3%) was the only sector to finish lower, but remains the best-performing sector year-to-date. Consumer Staples (+0.4%) also lagged.
|Index||April 2021||YTD 2021|
Corporate earnings are back in the spotlight and the results so far have lived up to the considerable hype. As of month-end, roughly 60% of S&P 500 companies had reported first-quarter results and nearly 90% of those beat consensus earnings estimates. Cumulatively, earnings have grown 46% compared to a year ago when the same companies were reporting in the midst of a global economic shutdown.
Strong earnings, a strong US consumer, and the tsunami of liquidity unleashed by the Federal Reserve continue to stoke inflationary pressures. As measured by the Consumer Price Index, the pace of inflation has reached its highest level in 2 ½ years, showing a year-over-year increase of 2.6%.
Inflation is especially evident in commodity prices. Crude oil rose 7.5% in April. Copper, steel, and natural gas all gained more than 10% last month. Lumber prices are at all-time highs with futures contracts trading roughly four times above their typical price at this time of year. On the Chicago Mercantile Exchange, lumber prices have risen by the daily maximum allowed in nine of the last 17 trading days.
Jerome Powell and the Fed, however, have shown no signs of adjusting dovish monetary policy. In late April, Powell struck a familiar tone in referring to inflation as temporary and reiterating the Fed’s current pace of asset purchasing is appropriate.
It’s no surprise the Fed remains exceptionally accommodative, but it also begs the question, “If central banks don’t raise interest rates or taper liquidity in times of economic strength, when will they?”
American GDP rose at a seasonally adjusted rate of 6.4% in the first quarter. Weekly unemployment claims have fallen to their lowest levels since the pandemic took hold in early 2020.
The only news that seemed to upset markets in April were reports that the Biden administration could double capital gains rates paid by Americans with taxable income over $1 million. That triggered an intraday selloff in equities that proved temporary. Even if such a change were to be implemented, it would not represent a major hurdle for market momentum, in our view.
Small-cap stocks, as measured by the Russell 2000 index, slowed their roll a bit, gaining “only” 2.1% in April. The index has gained nearly 15% through the first four months of 2021.
International equities also lagged last month. The MSCI EAFE index of Non-US Developed economies rose 3%. Emerging Markets increased 1.2%, though it’s notable that China reported first-quarter GDP growth of 18.3% from a year earlier.
US 10-year Treasury yields finished at 1.63% (compared to 1.75% a month earlier). Gold prices increased 3.6%.
The battle to vaccinate the country against COVID-19 hit a speed bump in April when the US Food and Drug Administration temporarily halted the use of Johnson & Johnson’s single-dose vaccine. The pause was lifted weeks later after it was determined rare cases of blood clots posed no serious threat to the public.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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