In April, The Federal Reserve continued to buoy the U.S. stock markets with statements about being patient and leaving open the possibility that the next move could be a rate cut. The S&P 500(1) broke through the key 2900 level and was up 3.9% last month, putting it up 18% year-to-date. International equities increased 2.8%, according to the MSCI EAFE Net Index(2), while Emerging Market stocks gained 2.1%, according to the MSCI Emerging Markets Net Index(2), over the same period.
Although global yields increased modestly, credit spreads declined. The 10-year Treasury yield(1) increased 0.1% to 2.5%, which caused the Barclays US Aggregate Total Return Index(1) to be flat in April. High yield spreads saw one of the largest decreases with the Barclays US High Yield Index(3) falling 33 basis points, producing a return of 1.4%. In Emerging Markets, local debt(3) fell slightly, because of the strength of the U.S. dollar, and political and economic uncertainties in Argentina and Turkey.
The Value Factor performed the best last month while small and high-quality stocks also did well. The Momentum Factor was the worst performer, having bought defensive stocks that performed well in the Fourth Quarter but did less well in April. Portfolios benefited by having a variety of Factor exposures starting in the Second Quarter.
As U.S. markets were reaching new highs, the IMF released in April its forecasted global economic growth, down 0.4% from its original number in October to 3.3%. The IMF cut their growth projection due to global risks such as a no-deal Brexit, the on-going trade war with China, the EU and the U.S., as well as further American sanctions on Iranian oil.
While we have seen limited volatility in 2019 so far, we still believe the U.S. is in the later stage of an economic cycle, a phase often characterized by greater risks and volatility. During this phase, market conditions can change quickly. For example, on May 5th, the VIX index (1), which measures stock market volatility, reached as high as 20.4. As of April 30th, the VIX was at 13.1, an increase of over 56% in volatility in a week’s time.
We continue to stress the importance of diversification in the current environment. We remain vigilant to ongoing risks and opportunities. If you’d like to schedule a time to speak with your CIG Capital Advisors professional, please contact 248-827-1010.