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Despite a last minute miniature selloff (led mostly by technology), the U.S. stock market inched a bit higher in April with a 0.45% positive return1 while the bond index lost just over 0.5%2 a product of rising rates during the month. A balanced 60/40 Stock/Bond portfolio of the above indexes would have left you where you started at the beginning of April, making me wonder if the markets thought the 30th was April Fool’s Day, rather than the 1st. Being that the Russell 3000 is made up of both Large (Russell 1000) and Small/Mid company sizes (Russell 2000), a quick dissection of the two would show that the weigh-down of the U.S. equity markets were the Small/Mid companies. Much of this selloff potentially came from a shift in investors who shielded themselves from the stronger dollar by keeping an overweight to small companies, as those companies typically don’t derive revenue outside of the U.S. As the U.S. dollar weakened in April, investor flows may have turned back to the larger companies creating a minor sell-off for the smalls. Speaking of outside the U.S., international indexes benefited from the short slide of the U.S. dollar as well as other positive economic news and offered positive returns for the month. Europe and other non-country-specific indexes posted gains over 4%3.
With a quick look into our own country’s data, certain indicators are showing signs of slow growth while earnings reports and other market-centric data continue to show expectations being beaten. The ISM index proved once again that our economy continues to expand making it 28 straight months of expansion for manufacturing and 71 straight months for the overall economy. The reading of 51.5 was identical to the reading in March. The only real sector indexes that showed contraction were inventories and employment4. One has to assume that the employment number is a direct correlation to the exodus of jobs in the energy sector due to the continued low prices and the cutback of production seen this year. And while 1st Quarter GDP came back a measly 0.2%5, you don’t have to look much past the harsh winter and the West Coast port strike to know why. Throw in a few kicks to the oil price dead horse and voila…0.2%. If history repeats itself (and I mean last year…remember the Polar Vortex?), quarters 2-4 should see an acceleration of GDP measurements bringing calm back to the fearful.
A note on earnings, revenue and Fed rate hikes. While earning has come back stronger than anyone has expected (90% of the earnings reports for the S&P 500 will be finalized this week) revenue is coming back AS expected…hurting. Guess why?! Strong dollar and oil prices (okay now I think I’m sounding like a broken record). Expected by the markets and priced in as well. As far as rate hikes, the doves (rate hike opposers) are winning and it would seem like the hike would not come until next year. However many hawks (rate hike supporters) feel that slow hikes late in the year could be possible but would support the continued economic recovery. Remember, the big thing here is wage growth (getting better) and inflation (not getting better). Our stance is that the earliest hike would be September with a much more probable outcome of early 2016.
As always we continue to monitor the markets and economy to help you navigate through the ebbs and flows of money management. Please don’t hesitate to contact us for any additional information or questions relating to your personal assets or personal planning. We are here for you.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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 performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
1Russell 3000 data taken from Morningstar Office – 04/1/2015 – 04/30/2015
2Barclays U.S. Aggregate Bond Index data taken from Morningstar Office – 04/1/2015 – 04/30/2015
3MSCI World ex USA, MSCI Europe, & MSCI EAFE all posted gains above 4% according to data taken from Morningstar Office – 04/1/2015 – 04/30/2015
4https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm – The ISM Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys. Read more: http://www.investopedia.com/terms/i/ism-mfg.asp#ixzz3ZMkdyySpFollow us: @Investopedia on Twitter