April 2017 Month In Review
April’s Month in Review
April marked another solid month of gains for the US Stock market and even better gains overseas, as the S&P 500 and Russell 3000 both creating just over 1% and the MSCI World (ex US) index up 2.13%1. This continues the trend of foreign investments outpacing the US this year led by emerging market equities. The Barclays Aggregate bond index strengthened by another 0.77%, doubling its return this year to 1.59%1. A balanced 60/40 US Stock/Bond index would have then resulted in a 0.94% return in April and a 4.75% return so far in 2017.
More notable this month was the passing of 6,000 points by the Nasdaq index. Back in the late ‘90s, the internet boom pushed the Nasdaq relatively quickly from 4,000 to 5,000 (took 71 days). Post the tech bubble burst, it took over 15 years to get back to 5,000, which was completed back in 2015. So to get to 6,000 from the initial 5,000 breakthrough day took 6,256 days. Nevertheless, we are much healthier as a Nasdaq today than we were back in 2000; much more justified with our valuation of these companies than back then2.
Earnings all across the world have made way for a much stronger start to this year than in 2016. European earnings reports have broken out of their depression of last year3; emerging markets are expected to increase their earnings by over 20% in 20174; and the S&P 500 is about to cap a historic bounce back of over 15% year over year earnings with increased forward guidance. So needless to say, the main engine of market growth (earnings) is revving up investor sentiment.
In addition to earnings, global markets are continuing to show strength in their PMI Manufacturing numbers. Latest report for March 2017 showed developed markets posting a 54.6 index and emerging markets posting a 51.5. As a reminder, anything over 50 is representative of economies expanding rather than contacting. To put it in perspective, emerging markets haven’t hit 51.5 since mid-20135. As well, developed markets haven’t seen this much strength for the last 3 years either6. With the potential relaxation of tax burden on corporations (still yet to be determined), it would seem that the continued strength of our economy and markets is a positive sign for the rest of this year.
As for volatility in the markets, we can expect there to be some sort of pullback this year. That being said, waiting around for the pullback to introduce cash into long-term investments is not a proper strategy. We know that besides 1995, there has not been an intra-year correction less than 5% going all the way back to the ‘80s. So while our current 3% drawback we’ve had this year is on the books, we wouldn’t expect that to be the last downward volatility we see6. Our process would be to continue investing in the normal long-term objective while then taking advantage of any short-term pullback. If you have large cash positions and are still anxious, we promote small amounts over time (dollar-cost-averaging).
Lastly, oil is still in the news this year as we’ve seen a pullback in oil prices from the increased production of US markets. While we don’t like the dip in price, a supply issue (mostly domestic) is much better than a demand issue worldwide. Supply issues are fixed with things like OPEC meetings and business decisions, and so we maintain a hold on our oil positioning for now.
As always, please contact us if you would like more information about how we think.
Brian Gensch
1Morningstar Office™ values as of 04/30/2017
2LPL Research Weekly Commentary, May 1st 2017 Publication
3LPL Research Weekly Commentary, April 24th, 2017 Publication
4Lazard – Outlook on Emerging Markets, April 2017 Publication
5http://www.markit.com/Commentary/NewsCommentarieFile?CMSID=7ea94afdb4594cc8b699c27665c667f9
6JPMorgan Guide to the Markets – multiple chart books
The economic forecasts set forth in the article may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk, including the loss of principal. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.