April month end
Despite a stellar first quarter for most risk‐assets, they didn’t take April off. Major U.S. stock indexes enjoyed their best four‐month start to a year since at least 1999 with the S&P 500 reaching new highs with a gain of +18%. Every asset class except real estate and international bonds advanced in April.
Gains were fueled by accommodative central banks, signs of stabilization in Chinese growth, hints of improvements in European economies, and optimism for a resolution in U.S.‐China trade talks.
Another key factor supporting the impressive market action was the improvement in first quarter earnings. Coming into 2019 forecasts were for a negative quarter. But companies have been able to beat lowered forecasts and earnings expectations have steadily risen throughout the earnings season.
Credit participated in the April risk‐on atmosphere, but rate expectations did reset during the month. Near the end of March, markets were pricing in an 80% probability that the Fed would cut rates in 2019. But at the end of April, it receded to about 50% odds.
Growth’s dominance of Value continues unabated. Growth outperformed the last five months, its first five month win streak since Jan 2017 through May 2017. The outperformance of Growth since Jan 2017 has been impressive, with Growth winning 19 of the 28 months and a cumulative total return advantage of 53% to 19%.
U.S. stocks beat international for the fourth month in a row, but nearly all the outperformance came in the last week.
Fixed Income (Bonds)
As seen in equities, risk-on also worked in bonds with High Yield outperforming Investment Grade. Other than the Fed pivot month in March high yield has outperformed investment grade in the other three months of 2019.
Domestic Bonds outperformed international bonds again. Global bonds beat U.S. bonds in January but U.S. fixed income has had the advantage every month since, especially as more and more overseas yields creep back into negative territory.
Have a blessed week.