Markets were largely positive in April as investors continued to grapple with the banking crisis, as First Republic Bank became the latest institution to be seized by federal regulators after a long struggle to remain solvent. The majority of the bank’s assets were immediately sold to JP Morgan Chase.
The S&P 500, a broad benchmark for large cap US stocks, added +1.6% in April and has rallied +9% year-to-date.
Smaller companies continued to fall due to their heavier weight to regional banking stocks, with the Russell 2000 index losing -2% on the month (+1% year-to-date).
Overseas equities continue to track the performance of large cap US stocks, as the MSCI ACWI ex-US index gained +1.7% in April for a +8.7% full-year return.
The bond market had a relatively quiet month, with the Barclays Aggregate Bond index gaining +0.6% in April (+3.6% YTD), with interest rates holding steady ahead of what looks to be the Fed’s last rate hike of the current cycle at their May meeting.
Commodity prices continued to cool as inflation moderated in April, with the Bloomberg Commodity index falling -0.8% last month for a -6% gain for the year.
Our proprietary Three Dials outlook remained unchanged in April, as we summarize below:
While blue chip stocks have enjoyed a prosperous start to the year both at home and abroad, weakness in both smaller company and emerging market stocks points to a mixed bag within equity sentiment. Taken together, our Momentum Dial remains in a Neutral position.
With stress in the banking sector showing no signs of ending and manufacturing data continuing to point to a slowdown, a strong labor market remains the lone positive in an otherwise gloomy economic landscape. Our Fundamental Dial remains in a Negative position for the time being.
Equity valuations were largely unchanged on the month, with price-to-earnings ratios in line with long-term averages pointing to fairly valued stock market. As such, our Valuation Dial remains in Neutral territory.
Our Three Dials composite reading continues to take a Moderately Defensive approach, with two dials in a Neutral position while one dial remains Negative.
Sources: Morningstar