U.S. and International Equities
This month provided another set of positive results for the U.S. major market indexes. The top performer was the Nasdaq, rebounding from last month’s lagging performance. International developed markets (MSCI EAFE) and emerging markets (MSCI EM) were also positive in April.
Real Estate Redux
The real estate sector is this month’s top performing sector. It has enjoyed a rebound this year and it is this year’s most improved sector. With added economic reopening on the horizon along with recent interest-rate stability, commercial real estate may continue to benefit.
Consumer Discretionary and Communication Services
Given COVID-19 vaccination progress, positive earnings results, along with the economic reopening efforts, the consumer discretionary and communication service sectors were also top performing sectors this month. We expect these areas to do relatively well given the recovery.
Energy Combusts in April
Energy has been one of the best performing sectors since Q4 2020. WTI crude has returned an astonishing 317% since nine months ago.
In April, energy was the worst performing sector, gaining a fraction, as some investors took profits off the table given past sector performance.
February’s Fixed Income Results
The benchmark Bloomberg Barclays U.S. Aggregate Index finished the month higher, as investors took advantage of last month’s bond selloff. Municipal high yield (Bloomberg Barclays High Yield Municipal index) had a positive April. These bonds have been aided by municipal support in the fiscal stimulus package along with discussion of higher taxes. The Bloomberg Barclay High Yield Municipal Index has gained over 3% this year, making it one of the top performing fixed income sectors year to date.
International bonds (FTSE World Government Bond Index) and emerging markets debt, measured by the JP Morgan Emerging Markets Bond Index (EMBI), ended the month higher as lower bond yields were not limited to the US.
Commodities, April’s Comeback Kid
Commodities rebounded in a big way during April. All major commodities were higher last month. Copper and natural gas, two industrial commodities, both returned 12% respectively in April.
“In April, we witnessed the continuation of the economic reopening trade in risk-based assets, while bonds rebounded from oversold conditions,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “A strong corporate earnings season to-date and the ongoing trend of favorable economic data helped investor confidence. The S&P 500 has finished higher in five of the last six months.”
U.S. Economic Data Recap
Inflation: Consumer prices increased higher last month reinforcing the recovery thesis. Higher gasoline prices have fueled both consumer and producer prices for 2021. Removing volatile food and gas prices, the March core Consumer Price Index increased 0.3% from February and 1.6% from March 2020.
March producer prices increased more than expected, showing its largest annual increase in over nine years. Year over year, the March PPI increased 4.2%, while March’s month over month increase was 1%. March’s inflation showed to be substantial; however, we believe any inflationary pressure will ultimately prove transitory, especially given labor market slack.
U.S. Consumer: The Conference Board’s Consumer Confidence Index surged again in April to its highest reading since February 2020. The Present Situations Index also soared in April.
The University of Michigan consumer sentiment survey for April increased almost 2%. This represents an over 20% year over year increase. The economic reopening efforts are credited for the increase in both measures.
Retail Sales: Monthly retail sales have been quite volatile. In January, sales handily beat expectations as stimulus checks hit bank accounts, whereas in February, retail sales retreated from that high water mark.
March retail sales rebounded mightily, increasing almost 10% month over month, well ahead of Bloomberg consensus expectations. March’s gains, which were driven by another round of stimulus checks in addition to reopening progress, marked the highest retail sales increase in 10 months.
U.S. Home Sales: New home sales declined over 3% in March; however, they remained over 10% higher compared to March 2020. Real estate experts credit a lack of supply, not demand, as the reason for the decline in March home sales.
Small Business Sentiment: The National Federation of Independent Business (NFIB) Small Business Optimism Index rose again in March and just surpassed its 47-year average of 98. The NFIB report expressed concern about a tightening job market. Over 40% of business owners reported unfillable job openings, which represents a record high.
Federal Reserve (Fed) News: As expected, the Federal Open Market Committee (FOMC) left the fed funds rate target unchanged and acknowledged that economic activity had strengthened, with potential risks. In addition, the committee acknowledged that inflation has risen due to “transitory factors.”
U.S. Employment: The U.S. unemployment rate has declined but is still well off full employment levels. COVID-19 continues to impact the recovery of service industry employment in particular. The continued distribution of COVID-19 vaccines, stimulus efforts, and COVID-19 spread mitigation, should continue to help the labor market.
Market participants will continue to keep a close eye on progress with COVID-19 cases, particularly in light of emerging variants of the virus. Strong fourth quarter earnings were an important driver in this year’s market results so far, and first quarter earnings, which presently are tracking above expectations, should help keep market valuations in check. This trend along with improving earnings expectations needs to continue in order for the markets to keep performing well.
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