The S&P flirted with 1,400 for the first time since early January, closing at 1,385 with its best monthly return since 2003. The drivers for this price recovery have been the slew of positive first quarter earnings from the likes of Google, Boeing and American Express. According to Bloomberg, 63% of the companies in the S&P 500 that have reported earnings so far have positively surprised. Accordingly, the Dow Jones Industrial Average rose 4.7% to close at just under 13,000, while the tech-heavy NASDAQ jumped nearly 6% to close at 2,413.
International developed markets rebounded strongly, while emerging markets soared even more, as last month’s brutal sell off appears, at least for now, to have ended. The MSCI EAFE index gained 5.6%, and the MSCI Emerging Markets added 8.1% in April. Small caps lagged their larger counterparts, as the S&P Citigroup EMI ex-US index rose 2.3% during the month. The proximate cause for the strong rally is difficult to pinpoint. Maybe there was too much pessimism on the part of media, and investors decided to put some of their cash to work? Perhaps markets breathed a sigh of relief, as another Bear Stearns situation did not turn up.
Treasuries retreated 1.7% in April, the first monthly loss since June, as investors regained their appetite for riskier assets. Flows out of money market funds into high yield fixed income funds increased. Investment grade corporate credit issuance shattered previous monthly records, with more than $101 billion coming to market as many financial institutions took advantage of improved market conditions.
Performance for each of Kanaly’s equity models generally kept pace with the market in April, despite having a defensive bias. Most sectors contributed positively, led by the energy, financials, and consumer discretionary sectors. Some of our more defensive holdings in the consumer staples and health care sectors lagged the market. Year-to-date, the Core, Growth & Income, and Diversified models are significantly outperforming the S&P 500 index.
So should April’s rally in equity markets be taken as an “all is clear” sign to investors? As strategic long-term investors, we simply do not know. Certainly more write downs related to credit at large European banks and a tightening of global food situation are distinct possibilities. Either of these two situations could add to political and market discord in various regions across the world. Additionally, we still believe that volatility and dispersion of returns across countries and sectors will continue. Having been long-term students of the markets, we also realize that when investor sentiment turns too strongly in either direction, sharp and often violent market movements in the opposite direction can occur. Investors should remain well diversified and expect continued volatility.
For more information or questions, e-mail us at kanaly@kanalytrust.com. Or you can visit us at www.kanaly.com.
www.Kanaly.com
YouTube: Kanaly Trust