April began with the S&P 500 Index declining and moving close to 2018’s lows reached in early February. As would be expected, elevated market volatility accompanied these declines. However, for the balance of the month, volatility moderated and U.S. equity markets were able to advance for the first monthly gains since January. Despite those gains, the theme of choppier markets appears to be more consistent in 2018 after an extended period of calm dominated capital markets in 2017. The S&P 500 remained in modestly negative territory at -0.38% on a year-to-date basis through April. For the month, the S&P 500 gained about 0.38%, the Dow Jones Industrial Average 0.34%, the Russell 1000 Index 0.34% and the Russell 3000 Index 0.38%. The NASDAQ Composite was barely positive, increasing by just 0.08%. Growth stocks (as measured by the Russell 1000 Growth Index) increased a modest 0.35% surpassing value stocks (as measured by the Russell 1000 Value Index), which increased 0.33%. The MSCI ACWI ex US Index, a measure of developed international equities, outperformed U.S. stocks, posting an increase of 1.60%, while the MSCI Emerging Markets Index declined by 0.55% for the month.

The pressure on bonds resumed in April after a modest reprieve in March. The yield on the 10-year U.S. Treasury increased by 21 basis points to 2.95% during the month and crossed above the important 3% mark in April. Not only was this its highest level thus far in 2018, but it is the highest yield in over four years for this benchmark. The yield curve steepened during the month, with the difference between the 10-year U.S. Treasury and the 3-month U.S. Treasury increasing to 108 basis points (1.08%) from the prior month’s 101 basis points. Overall, this led to a difficult month for most pockets of fixed income with the Bloomberg Barclays U.S. Aggregate Bond Index, U.S. Treasuries, munis, and investment grade corporate bonds all declining in value. High yield bonds turned out to be one of the few bright spots in fixed income, enjoying positive results in April. The Federal Open Market Committee (FOMC) did not have a meeting in April but will convene over the first two days of May. That being only the second meeting under the new leadership of Chairman Powell, who took over from Janet Yellen in February. No change in rates is expected. Market observers will continue to watch the actions of the Federal Reserve (Fed) closely, especially as it continues on its current rate-hike path. We expect a slow and measured rate-hike cycle from the Fed, as has been the case since it began raising rates in December 2015. So far, the Fed has only increased rates six times in the 19 meetings that have occurred over this time frame. Most areas of fixed income, especially those more rate-sensitive areas such as U.S. Treasuries, declined during the month, but high yield bonds rose. The widely followed Bloomberg Barclays U.S. Aggregate Bond Index declined 0.74% in April, municipal bonds lost 0.36% and high yield bonds increased 0.65%.

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The S&P 500 Index gained in April for the first time since January. However, this widely followed U.S. equity index remained in modestly negative territory for the year to date. At the beginning of the month, the S&P 500 briefly dipped back into bear market territory (down 10% from the late January highs), but it recovered from that point to close out the month on a positive note. Higher capital market volatility coincided with this early month decline in equities, but volatility moderated from that point for the balance of the month. Most major U.S. stock indices, including the S&P 500, Dow Jones Industrial Average, NASDAQ, Russell 1000, and Russell 3000 managed to post modest gains for April, although these indices are still down on a year-to-date basis. The Russell 2000 Index, a measure of small capitalization stocks, also enjoyed gains in April and is now positive for the year to date. Developed international stocks outpaced the major U.S. stock indices for the month, while emerging market stocks declined. No significant performance advantage was evident between growth and value stocks.

The notable rise in 10-year U.S. Treasury yields that began 2018 resumed in April. The yield on the 10-year U.S. Treasury rose 21 basis points during the month and crossed above the important 3% mark, its highest level in over four years. Overall, this increase in interest rates resulted in negative returns for most fixed income sectors in April. High-yield bonds were one of the few pockets in fixed income that bucked this trend and turned in positive monthly results. The Bloomberg Barclays U.S. Aggregate Bond Index posted negative returns as both Treasuries and investment grade corporates declined in value.

The economy slowed a bit in March but remained solidly in growth mode. The labor market disappointed as new job additions posted the smallest increase in six months. New job openings dipped, although the unemployment rate held steady at 4.1%. Housing was a bright spot, as building permits, housing starts and new and existing home sales all increased from last month. Inflation saw an uptick as the effects of higher energy prices rippled through the economy. The first estimate of first quarter 2018 GDP was 2.3%, a positive surprise compared to the 2.0% consensus estimate. While this is a slowdown from the last few quarters, it is actually the strongest first quarter in the U.S. since 2015. The ISM Manufacturing Index and ISM Non-Manufacturing Index softened a bit but remained elevated and continued to indicate solid economic growth. The Federal Open Market Committee’s two day meeting concludes on May 2nd and no rate change is expected. President Trump nominated Richard Clarida to be the Fed’s Vice Chairman and Michelle Bowman to fill another vacant spot on the board. Both nominations suggest a continuation of current Fed policy.

Event Period Estimate Actual Prior Revised
Nonfarm Payroll Mar 185,000 103,000 313,000 326,000
Unemployment Mar 4.00% 4.10% 4.10%
ISM Manufacturing Mar 59.6 59.3 60.8
ISM Non-Manufacturing Mar 59 58.8 59.5
Retail Sales ex Auto & Gas Mar 0.40% 0.30% 0.30%
Average Hourly Earnings YOY Mar 2.70% 2.70% 2.60%
JOLTS Job Openings Feb 6,024,000 6,052,000 6,312,000 6,228,000
PPI MOM Mar 0.10% 0.30% 0.20%
PPI MOM ex Food & Energy Mar 0.20% 0.30% 0.20%
PPI YOY Mar 2.90% 3.00% 2.80%
PPI YOY ex Food & Energy Mar 2.60% 2.70% 2.50%
CPI MOM Mar 0.00% -0.10% 0.20%
CPI MOM ex Food & Energy Mar 0.20% 0.20% 0.20%
CPI YOY Mar 2.40% 2.40% 2.20%
CPI YOY ex Food & Energy Mar 2.10% 2.10% 1.80%
Industrial Production Mar 0.30% 0.50% 1.10% 1.00%
Housing Starts Mar 1,267,000 1,319,000 1,236,000 1,295,000
Building Permits Mar 1,321,000 1,354,000 1,298,000 1,321,000
New Home Sales Mar 630,000 694,000 618,000 667,000
Existing Home Sales Mar 5,550,000 5,600,000 5,540,000
Leading Index Mar 0.30% 0.30% 0.60% 0.70%
Durable Goods Orders Mar (P) 1.60% 2.60% 3.00% 3.50%
S&P CoreLogic CS 20-City YOY Feb 6.35% 6.80% 6.40% 6.43%
Personal Income Mar 0.40% 0.30% 0.40% 0.30%
Personal Spending Mar 0.40% 0.40% 0.20% 0.00%
GDP Annualized QOQ 1Q (A) 2.00% 2.30% 2.90%
Univ. of Mich. Sentiment Apr (F) 98 98.8 97.8
P = Preliminary, A=Advance, F = Final
Source: Bloomberg

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