April Was Month of Gains, Mischief
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
The stock market ended the last day of April on a down note, but held on to monthly gains. Until this week, April appeared as if it was going to be another strong month for the major averages, with the Standard & Poor’s 500 and the Nasdaq Composite both making new all-time highs last week.
However, recent profit-taking in some of this year’s top-performing areas of the stock market, such as small-company stocks and European shares, appeared to pull the major averages lower. The S&P 500 slid 1.01 percent on Thursday as it trimmed its monthly return to a slight increase of 0.85 percent. Likewise, the Nasdaq Composite was down 1.64 percent on the day, trimming its April return to a positive 0.82 percent. The big winner for April was emerging markets, with the MSCI Emerging Market index gaining 6.8 percent for the month.
The month of April appeared to have a mischievous side as it fooled those investors who may have expected the U.S. dollar to continue higher, oil prices to fall lower and bond prices around the world to rise. To the contrary, those areas that had been recent winners or losers changed course as economic reports indicated the U.S. economy was less robust than anticipated and that the Federal Reserve would have to push out their timeline for raising interest rates.
Recent weakness in the U.S. dollar has put foreign bonds at the top of this week’s list, with the S&P International Corporate Bond Index gaining 1.94 percent over the past five trading days. Following close behind, the S&P/Citigroup International Treasury Bond index gained 1.65 percent over the same period.
Foreign bonds have been in the news lately for some not-so-positive reasons, as some are starting to point out that more than €2 trillion in eurozone government bonds are now trading on a negative interest rate. When bonds have negative rates, it means the investor is paying the bond issuer, in this case European countries, interest to keep their money. According to the investment bank Jeffries, nearly 70 percent of all German bunds trade on a negative yield, while in France it’s 50 percent and in Spain it’s 17 percent. While some may see this as a flight to safety by investors, others see this as a distortion caused by the excessive debt being created by central banks that could end badly.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.