Global equities sold off in April to re-test their Q1 lows, with concerns over inflation, interest rates and global growth weighing on markets. The S&P 500, a benchmark for large cap US stocks, fell -9% in April for its largest monthly decline since March of 2020, and is now down -13% on the year.
Overseas equities lost -6% this month for a -11% full-year return on the MSCI ACWI ex-US index. Within fixed income, the Barclays US Aggregate Bond Index fell another -4% this month (-9.5% YTD), with a 50 bps rate hike in May all but guaranteed as the Fed looks to wrangle inflation under control. Gold prices gave back -1.6% in April but remain up 6% year-to-date, with commodities providing a hedge against inflation and uncertainty.
When markets are volatile and emotions run high, our data-driven Three Dials approach allows us to have an appropriate, measured to response as the investment landscape shifts. Our proprietary reading moved a notch lower as a result of the market movement last month, which we summarize below:
Sentiment amongst individual investors hit its lowest level since 2009, with market participants increasingly uneasy over growth prospects. The tech-heavy NASDAQ, home to many household favorites, is off to its worst ever start to a year. As a result, our Momentum Dial shifts into a Negative reading through the end of April.
Despite a headline GDP report that showed a surprise contraction for the US economy in Q1, a larger than normal trade imbalance is to blame for the negative number.
Strong growth from the consumer suggests that a recession is not imminent. Our Fundamental Dial remains in a Positive position for now.
Despite a few high-profile misses, earnings season for the S&P has been largely positive, with 80% of companies beating bottom-line estimates so far. As a result, stock losses have come as a result of multiple contraction from one of the most expensive markets in history. While P/E ratios have come down, stocks remain far from cheap, and our Valuation Dial stays Negative.
Our Three Dials composite reading takes a step down from Neutral to Slightly Defensive, suggesting we take a bit of risk off the table in the face of growing uncertainty. We continue to preach diversification and will communicate all future updates accordingly.
Sources: Morningstar, CME Group, Factset, AAII, Wall Street Journal