April 2019 Market Commentary

Through the end of April, equity markets logged a fourth consecutive monthly gain to start the year, with major indexes recovering to levels last seen prior to the 2018 Q4 selloff. The Russell 3000 Index, used to measure the broad performance of US stocks, gained +4.0% in April and is up +18.6% year-to-date. International stocks advanced +2.6% on the month for a +13.2% gain YTD, per the MSCI ACWI ex-US Index. On the fixed income side, the Bloomberg Barclays US Aggregate Bond Index was flat on the month and is up +3.0% YTD. A balanced portfolio, comprised of 60% in global equities and 40% in fixed income, would have gained +2.1% in April for a +11.0% performance YTD.

As we push deeper into the economic and stock market recovery post-2008, we would expect volatility, similar to what we’ve seen over the last seven months, to persist. Rather than trading based on every tweet that comes across our screen, we prefer to take a principled, risk-managed approach to investing.  Archetype’s Three Dials framework provides a holistic view of the investment and economic landscape, and below we provide a monthly update on our three primary indicators:

1. Market Sentiment and Momentum: Positive (upgraded from Neutral last month)

In April, we saw both Domestic and Emerging Market stocks break out above their trendlines, the first time in over a year that these two disparate sectors of the global equity landscape have embarked in a synchronous advance. While markets have wobbled a bit in the first weeks of May, continued resilience in the face of less than ideal geopolitical conditions moved our Momentum & Sentiment Dial into a Bullish reading for the first time in 2019.

2. Economic Fundamentals: Positive

The US Labor Department reported in April that the economy added a robust 263,000 new jobs, and that unemployment ticked down to 3.6%, indicating that the domestic economy continues to hum on all cylinders. Worldwide, the latest IMF outlooks suggests that, despite a slight downtick this year, global growth should remain around the +3.6% annual trend rate through 2020. Although trade negotiations with China represent a significant unknown variable, our Fundamental Dial remains in a Pro-Growth position.

3. Valuation: Negative

Historically high valuation levels continue to moderate our investment outlook. The cyclically adjusted price-to-earnings ratio on US equities remains well above its long-term average. While certain emerging market countries are still priced attractively, on the whole our Valuation dial remains in the Negative position at this time.

On a composite basis, our “Three Dials” paint a cautiously optimistic picture of the investment landscape.

Sources:

https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/market-insights/get-invested-stay-invested-navigating-volatile-markets

https://www.nytimes.com/2019/05/03/business/economy/jobs-report-april.html

https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019#Chapter%204