THE MONTH IN BRIEF
U.S. stocks wavered in April but the S&P 500 ultimately finished up 0.96%. Yet international holdings outshone the U.S. and were up markedly with emerging markets racking returns of 7.69% and international developed equities 4.08%. Interest-rate sensitive markets were down for the month with global real estate losing 2.96% and fixed income losing 0.36% as interest rates went higher. (Note: there is a general inverse relationship between the movement of interest rates and the return on interest-rate sensitive markets.)
See below for a table of various index performance.
U.S. stocks wavered in April but the S&P 500 ultimately finished up 0.96%. Yet international holdings outshone the U.S. and were up markedly with emerging markets racking returns of 7.69% and international developed equities 4.08%. Interest-rate sensitive markets were down for the month with global real estate losing 2.96% and fixed income losing 0.36% as interest rates went higher. (Note: there is a general inverse relationship between the movement of interest rates and the return on interest-rate sensitive markets.)
Was the economy doing well? Or not as well as commonly believed? Last month, two headlines emerged that affected investor perceptions.
For
the first time in a year, the economy added less than 200,000 jobs in a month:
payrolls grew by 126,000 in March according to the Labor Department. In
addition, 69,000 hires were retrospectively subtracted from January and
February hiring totals. The headline unemployment rate stayed at 5.5% in March,
with “total” unemployment (the U-6 rate including the underemployed) at 10.9%.2
The
federal government’s first estimate of Q1 GDP was just 0.1%. Analysts polled by
MarketWatch had forecast 1.1% expansion. In Q4 2014, the economy grew 2.2%.3
Countering
these news items, personal spending improved 0.4% in March while retail sales
rose 0.9%. Although the Commerce Department reported no personal wage growth in
March, word came that the federal government’s employer cost index rose 0.7% in
Q1 (those costs include wages). Both the headline and core Consumer Price Index
were up 0.2% for March.3,4
News
of rising oil prices and reduced hiring may have impacted consumer outlooks. While
the University of Michigan’s consumer sentiment index rose 2.9 points in April
to a mark of 95.9, the Conference Board’s consumer confidence index fell 6.2
points to 95.2.3
With
energy costs rising, producer prices increased 0.2% for March, as opposed to
the 0.5% retreat seen in February. After going negative for four straight
months, headline durable goods orders increased by 4.0% in March.4,6
The latest Federal Reserve policy statement acknowledged
paltry Q1 growth and the disappointing March jobs report, yet Fed officials
maintained their view that “economic activity will expand at a moderate pace”
in the near term. In other words, an interest rate hike in mid-2015 was
improbable but not impossible.7
GLOBAL ECONOMIC HEALTH
The odds of Greece making its upcoming €200 million payment to the International Monetary Fund seemed to lengthen, even with the IMF extending the deadline to May 6. The Syriza party announced it would stick to its commitment to fully fund Greek social welfare programs and termed the austerity measures implemented as part of the IMF bailout “crimes”. A Grexit could happen in May and the Greek economy – which has already endured the worst recession recorded in any country since the Great Depression – could sink further. As for the broad euro area, its jobless rate remained at 11.3% with consumer prices expected to be unchanged for April after a 0.1% dip for March.8,9
The odds of Greece making its upcoming €200 million payment to the International Monetary Fund seemed to lengthen, even with the IMF extending the deadline to May 6. The Syriza party announced it would stick to its commitment to fully fund Greek social welfare programs and termed the austerity measures implemented as part of the IMF bailout “crimes”. A Grexit could happen in May and the Greek economy – which has already endured the worst recession recorded in any country since the Great Depression – could sink further. As for the broad euro area, its jobless rate remained at 11.3% with consumer prices expected to be unchanged for April after a 0.1% dip for March.8,9
In
China, securities regulators discouraged margin lending in mid-April as small
investors were borrowing dangerous amounts of money to buy stocks in a runaway
bull market. New rules permitted fund managers to lend shares for
short-selling, and investors were allowed to short a greater number of stocks.
These developments prompted a brief global selloff on April 17.10
HSBC’s
final April factory PMI for China showed contraction at 48.9, pointing to a
distinct slowdown and perhaps a need for added stimulus. Markit’s April factory
PMI for the euro area declined 0.2 points from its March level to 52.0.11
COMMODITIES MARKETS
Oil was the big story here. WTI crude
ascended 25.86% during April, finishing the month at $59.63 on the NYMEX.
Heating oil and unleaded gasoline saw respective gains of 15.62% and 15.60%. Additionally,
April saw a 3.25% improvement in natural gas futures.13
REAL ESTATE
The housing market approached its busiest season with momentum. Existing home sales rose 6.1% for March with the annualized pace hitting an 18-month peak, the National Association of Realtors reported. Existing home prices were up 5.1% year-over-year according to NAR; the 20-city S&P/Case-Shiller home price index measured their annualized improvement at 4.2%. NAR’s pending home sales index followed its 3.6% February advance with a 1.1% gain for March.3,15
The housing market approached its busiest season with momentum. Existing home sales rose 6.1% for March with the annualized pace hitting an 18-month peak, the National Association of Realtors reported. Existing home prices were up 5.1% year-over-year according to NAR; the 20-city S&P/Case-Shiller home price index measured their annualized improvement at 4.2%. NAR’s pending home sales index followed its 3.6% February advance with a 1.1% gain for March.3,15
Three other housing indicators went negative in March,
however. New home sales fell 11.4%, but they were still up 19.4% compared to a
year ago. The Census Bureau also found housing starts down 2.0% in March, and
building permits down 5.7%; in annualized terms, starts were down 2.5% but
permits up 2.9%.16,17
Freddie Mac’s April 30 Primary Mortgage Market
Survey found the average interest rate on a conventional home loan down just
0.01% from March 26 at 3.68%. Rates on 15-year FRMs declined 0.03% to 2.94% and
rates on 5/1-year ARMs dipped 0.07% to 2.85%; rates on 1-year ARMs rose 0.03%
to 2.49%.18
Best Regards,
Kevin Kroskey
This article adapted with permission from MarketingLibrary.net.
Citations.
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