April 2021 Stock Market Commentary
Ethan Pollard | May 10 2021
Equity markets saw a third consecutive monthly increase in April, as the global economic acceleration outweighed concerns over rising COVID cases in developing countries. The S&P 500, a benchmark for large cap US stocks, gained +5.3% on the month for a gain of +11.8% year-to-date.
Small- and mid-cap stocks advanced +2.1% in April per the Russell 2000 index, which has rallied +15.1% this year in support of a broader domestic recovery.
Overseas equities advanced +2.9% this month, with the MSCI ACWI ex-US index now up +6.5% on the year. Fixed income markets recovered after a first quarter marked by rising interest rates and falling bond prices. The Barclays US Aggregate Bond Index rallied +0.8% in April for a -2.6% return YTD.
10-year Treasury rates fell ten basis points to end the month at 1.6%, with inflation fears moderating after the Fed labeled recent rises in the Consumer Price Index as transitory. Gold prices also recovered from a Q1 loss, gaining +4.5% in April (-6.4% YTD).
As always, we seek to look past the headlines and let the data inform our decisions. Below is a recap of our firm’s propriety Three Dials framework, each of which were unchanged during the month of April:
- Market Sentiment and Momentum: Positive
After a double bottom during the fourth quarter of 2020, the S&P has held a strong upward trendline over the past six months for a gain of +29% during that period. While conditions may be slightly overbought in the near-term, the longer-term outlook for equities remains bullish, which leaves our Momentum Dial in a “Positive” position.
- Economic Fundamentals: Positive
The first look at US GDP saw the economy grow at a +6.4% annualized rate during Q1 as we continue to make up for lost output from the COVID shutdowns. With key indicators such as Consumer Confidence returning to pre-COVID levels, our Fundamental Dial continues to show a “Positive” reading.
- Valuation: Negative
Earnings growth from the S&P has been coming in at near-record levels so far this quarter, which has fueled investor optimism and driven up equity valuations. While we share in this optimism, we remain wary of the risks presented by these lofty prices, which has our Valuation Dial in a “Negative” position at this time.
On balance, our Three Dials composite reading continues to take a “Cautiously Optimistic” view, as strong showings in the areas of Momentum and Economic Fundamentals are balanced by Valuation concerns. While we recommend moderate investors rebalance back to their strategic equity targets given the strong run-up in stock prices, our long-term investment thesis remains intact.
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