- Global economic fundamentals look strong, but geopolitical risks remain
- Stocks had a volatile month of April, with large gains in international developed markets
- Short term interest rates increased and the yield curve continued to flatten
April was indeed a volatile month with stocks experiencing some dramatic swings, both up and down. While the global economy looks healthy and continues to expand, tariff threats and trade fears dominated the market on an hourly basis. The S&P500 finished the month up 0.38% after losing 2.23% on the first trading day.
Inflation fears increased during the month and pushed oil prices to new multi-year highs. As a result, energy stocks were the best performers up 9.36% in April. Prior to this, energy stocks had lagged the overall market for quite some time. Consumer discretionary (+2.36%) and utilities (+2.10%) also performed well for the month. China’s response on tariffs hit consumer staple stocks (-4.32%) and industrials (-2.79%) as many of these companies produce a large part of their revenues overseas.
There was not a big difference in value and growth stocks in large caps for the month, but small caps (+0.86%) outperformed mid and large companies. Smaller companies tend to be more insulated from trade fears and a majority of their revenues tend to be generated domestically. Small cap value (+1.73%) and mid cap value (+0.50) dramatically outperformed their growth counterparts (+0.10) and (-0.94%), respectively.
International developed stocks performed well during April, with the MSCI EAFE Index up 2.28%. The United Kingdom (+4.83%) and France (+4.73%) enjoyed strong gains. Emerging markets dropped 0.44% during the month with a large selloff in Russia (-7.43%), resulting from additional sanctions from the US.
Fixed income markets saw higher rates in April as the 10-year Treasury crossed over 3% for the first time since 2014. The Bloomberg Barclays Aggregate Bond Index lost 0.74%. The yield curve continues to flatten with the spread between yields on 2 and 10-year treasuries narrows. The shape of the yield curve tends to be influenced by the Fed on the short end and by inflation expectations on the long end. Corporate and high yield bonds performed well during the month as rates increased, while the strengthening of the US dollar hurt returns for global bonds.
In times of higher volatility and a breakdown of correlations, well-diversified portfolios generally help to smooth the ride. If you have any questions, please reach out to any member of the Bernardo Wealth Planning Team.
Bill Roth, CFA
Sources: Bloomberg, Morningstar, Wall Street Journal