Equity markets survived a tumultuous April, with Trump’s “Liberation Day” tariff announcements sending markets into a tailspin, only for stocks to recover when Trump walked back most of those threats.
The S&P 500 ended the month down just -0.7%, though at one point the index was down nearly 14% for the month and over 20% from the December highs. After clawing back most of its April losses, the S&P is now down -4.9% through the first four months.
Smaller company stocks continue to get punished by the threat of a domestic slowdown, with the Russell 2000 index falling -2.3% in April for a -11.6% return so far this year.
International stocks, on the other hand, continue to hold their own, as the MSCI ACWI ex-US index rallied sharply after the Liberation Day selloff to end the month up +3.6%, with the overseas index now up +9% year-to-date.
Bonds were up modestly in April despite some volatility in the rate market, with the 10-year Treasury yield ultimately ending the month roughly unchanged. The Bloomberg Aggregate Bond index gained +0.4% in April and is now up +3.2% on the year.
Commodities markets were mixed, with oil prices plunging on concerns over global demand, while gold prices gained +6% to close the month at another record high.
Amidst continued volatility, we lean on our data-driven Three Dials framework, which was unchanged during the month of April as we outline below:
- Market Sentiment and Momentum: (Neutral)
Both the fragility and the resilience of this current stock market were on full display in April. If Trump insists on pushing his trade agenda at all costs, then further downside likely awaits. However, if Trump continues to yield to market pressures, then a floor may already be in place.
As such, we keep our Momentum Dial in a Neutral position while we await further clarity.
- Economic Fundamentals: (Negative ❌)
Real GDP fell well short of expectations in the first quarter, with a surge in imports ahead of the looming tariffs causing output to fall by -0.3%. While the rest of the report came in rather strong, it is fair to assume that policy uncertainty portends further economic uncertainty.
For now, our Fundamental Dial remains in a Negative position.
- Valuation: (Negative ❌)
The depth of April’s selloff was likely due in part to the historically high valuations for stocks, with price-to-earnings ratios on the S&P still above long-term averages despite stocks being well off the December peak. As such, our Valuation Dial remains in a Negative position.
On balance, we remain defensively positioned, with two dials sitting in a Negative position and one dial at Neutral.
Sources: Morningstar
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