Market Monitor: April Update – Altair’s Semi-Monthly Market Update
Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.
Headlines and Highlights
- Corporate earnings best in 7½ years: First-quarter profits for the Standard & Poor’s 500 were on pace for a 23 percent increase over a year earlier, the largest rise since the third quarter of 2010. The cut in the corporate tax rate was a key contributor. Despite the greater-than-expected results, U.S. stocks rose only fractionally in April as investors looked past earnings season and weighed other market concerns.
- Inflation nears Fed target: Consumer prices as measured by the core (excluding food and energy) personal consumption expenditures price index rose 1.9 percent year-over-year in March, just under the Federal Reserve’s 2 percent target. The increase was anticipated by economists and is not expected to change the Fed’s gradual pace of interest rate increases.
- Trade tensions simmer as key decisions await: The Trump administration delayed tariffs on steel and aluminum for key U.S. allies while holding off for now on decisions about follow-through on his initial trade proposals. European nations are demanding a permanent exemption and China is taking a tough public stance ahead of meetings this week with U.S. negotiators in Beijing.
Chart of Interest
Sources: Morningstar, Altair Advisers
- The brief rise of the 10-year government bond yield to just over 3 percent does not alter our belief that it will not climb substantially higher without significantly higher growth and inflation. Incrementally higher rates are a natural consequence of a healthier economy.
- We expect more market volatility as a result of global tensions over import and export tariffs. However, ongoing talks and exemptions reinforce our belief that the stand-off will ultimately end with a negotiated resolution that avoids a full-blown trade war.
- The fiscal stimulus that contributed to S&P 500 companies’ stellar earnings in the first quarter should help underpin markets for the next six months. Many companies have begun using the excess cash from tax cuts and the repatriation of foreign earnings for stock buybacks, dividends and capital expenditures.
- The U.S. economy remains on a solid path to higher expected growth. The 2.3 percent annual growth pace in gross domestic product in the first quarter, while unspectacular, was the best since 2010 in a seasonally weak quarter.
- Signs of slowing growth in Japan, Germany and the United Kingdom in the first quarter merit close attention in the months ahead. The global growth outlook remains improved from last year, however, and we have no current plan to reduce our recommended weighting to international equities.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.