April saw solid performance in the U.S. equity markets with all three major indices reaching all-time highs. The Dow gained 2.78% while the S&P 500 posted a strong return of 5.34%. The NASDAQ, after recent downward pressure in the technology sector, bested the month gaining 5.43%. The international markets also performed well in April. The MSCI EAFE index (Europe, Australia and the Far East) gained 3.01%, while the MSCI Emerging Markets index increased 2.5% despite considerable volatility.
The fixed income markets also performed well in April as rising interest rates, measured by the yield on the 10-year Treasury, stabilized. The Bloomberg Barclays U.S. Aggregate Bond Index gained 0.79% while high yield bonds, which are more highly aligned with the equity markets, gained 1.09%.
The reported 1st quarter gross domestic product (GDP) of 6.4%, along with better-than-expected corporate earnings, helped sustain the market’s momentum as the U.S. economy recovers from the COVID lockdowns. But under the surface of this strong performance is a market still in a state of flux as we continue to see value stocks providing solid performance for the first time in several years. On a day-to-day basis, the tug-of-war between growth and value stocks rages on. The attractiveness of value stocks is that they are perceived to benefit more from a recovering economy, and that technology may struggle in a rising interest rate environment.
It is important to note that inflation is on the rise and will increasingly become a force to be dealt with in coming months. While the Federal Reserve has previously stated that they will let inflation rise above 2% or more, investors fear inflation may get out of hand with the increased stimulus coming and forcing the Fed to raise interest rates to gain control.
At HFG, we continue to monitor markets and economic events on a daily basis. Our managed portfolios have benefited from a balanced stance between growth and value stocks, and fixed income holdings that have been less affected by rising interest rates. We anticipate increased economic activity as the clash in Washington continues as how best to position the U.S. economy as it continues to reopen from the COVID lockdowns. We will always keep you informed in our monthly Market Perspective.