Market Monitor: April 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
- U.S. stocks back at record highs: The 2019 global rally in risk assets maintained its momentum in April, with U.S. stocks posting their best four-month start to a year since 1987. The Standard & Poor’s 500 closed at an all-time high on April 23rd for the first time in seven months, officially extending the bull market past the 10-year mark. First-quarter earnings, while reduced from the same period a year ago, exceeded estimates to help fuel the latest gains.
- 3.2% GDP growth offsets fears of cooling economy: The U.S. economy overcame a sluggish start to 2019 to grow at a surprisingly robust 3.2% annual pace in the first quarter. A surge in net exports and a buildup in companies’ inventory amid the U.S.-China trade war contributed more than half of the increase, raising questions about whether those catalysts are sustainable. Household spending, business spending and manufacturing all have slowed, but the job market and other key indicators remain positive.
- Federal Reserve holds rates steady: Fed policymakers reaffirmed their recent change to a more accommodative monetary policy, saying the economy is in good shape but they see no reason to raise or lower interest rates. Chairman Jerome Powell said the Fed would be concerned if inflation remained persistently below its 2% target rate, as its core inflation gauge is now at 1.6%, but he emphasized the Fed’s patience and gave no hint officials are considering a rate cut.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- The Federal Reserve’s commitment to a more dovish policy continues to underpin markets, removing fears of over-tightening. We believe the Fed’s decision at its meeting this week to avoid signaling a rate cut later this year was wise and is consistent with a wait-and-see approach.
- The risk of a recession in the next 12 months appears limited given accommodative central banks, a strong job market and positive leading indicators. While we believe it is relatively late in the economic cycle, there is no sign the end of this 10-year expansion is imminent.
- The U.S. economy showed its resilience in overcoming slowdowns in consumer and business spending in the first quarter. Whether a 3% pace is sustainable remains to be seen, but we see no major hurdles to growth continuing through 2019.
- Productive talks this week between U.S. and Chinese negotiators point to a trade agreement between the two countries sooner rather than later. While it is unlikely to resolve all tariff-related disputes, we expect a deal to boost global trade and perhaps weaken the dollar, providing tailwinds for both international developed stocks and emerging-market stocks.
- Small-cap stocks are positioned for continued strength given our outlook for a second-half pick-up in economic activity and a rebound in company earnings, with attractive valuations relative to their large-cap counterparts.
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