April saw the S&P 500 advance 0.27% as a new earnings season unfolded – one in which investors grew uneasy about rising Treasury yields, protectionism, and privacy concerns involving tech giants. While the financial media largely focused on those anxieties, good news also appeared. The latest consumer spending and consumer confidence data was solid. Home buying picked up as listings increased slightly. Oil rallied, and so did the dollar. Overseas equity benchmarks saw big gains, even as some economists wondered if the boom in global growth was fading. One of the major financial news stories of April broke only hours before the start of May: a postponement of the tariffs planned for imported metals.1


On the night of April 30, the Trump administration elected to delay the imposition of excise taxes on aluminum and steel imported to America from China, Mexico, Canada, Brazil, Argentina, Australia, and the European Union. Those tariffs were set to take effect on May 1, but they are now on hold until at least June 1.2

Consumer spending was strong in March, according to the Department of Commerce. Households devoted 0.4% more of their incomes to consumer purchases than they did in February (and household incomes rose 0.3%). Retail sales picked up 0.6% in March, quite a change from the 0.1% decline in February. The Bureau of Economic Analysis released its first estimate of first quarter GDP in late April: 2.3%.3

Consumer confidence indices ended the month on an upswing. The University of Michigan’s index had a final April reading of 98.8, a point higher than its initial April mark. The Conference Board’s index came in at 128.7, a rise of 1.7 points from March; it surpassed MarketWatch’s consensus forecast by 2.8 points.3

Inflation pressure was mounting: the year-over-year change in the Consumer Price Index was 2.4% through March, even with a 0.1% retreat for the headline CPI. (That compares to 2.2% annualized inflation in February.) The core CPI was up 2.1% in the 12 months ending in March, compared to a yearly gain of 1.8% a month previously. Annual wholesale inflation reached 3.0% as the first quarter ended. The March employment report from the Department of Labor showed wages keeping pace with consumer costs; they were rising at 2.7% annually.4,5

The rest of the March jobs report was disappointing. Employers added only 103,000 net new hires, the lowest monthly total in half a year. Some economists thought weather held hiring back in certain industries. The Department of Labor recorded unemployment at 4.1% for a sixth consecutive month; the good news was the 0.2% dip in the U-6 jobless rate that encompasses underemployed Americans. In March, the U-6 rate fell to 8.0%.5

Once again, expansion in the manufacturing and service industries impressed. The Institute for Supply Management’s twin purchasing manager indices were in the high fifties in March; they both declined from lofty February readings. ISM’s factory PMI descended to 59.3 in March from 60.8 and wound up at 57.3 in April. Its service sector PMI fell from 59.5 to 58.8 in March. Durable goods orders rose 2.6% for March.3,6


Were seemingly healthy economies in Europe losing momentum? Investors, economists, and journalists noticed some deterioration in fundamentals. An index of German business confidence touched a low unseen in a year in April, echoing a drop in a broader eurozone index. Markit’s eurozone manufacturing PMI was 56.0 at last reading, but about five points lower than its late 2017 peak. The Baltic Dry Freight Index, a barometer of shipping activity, fell to an 8-month low in April. The yield curve for government bonds has been flattening in western economies, a signal of more pessimism than optimism. Still, some analysts call these declines seasonal, reflective of rough weather in the Northern Hemisphere, a harsh flu season leading to more sick leave, and holidays arriving early on the calendar.7

Growth forecasts for the key Asia-Pacific economies still look bright. As an example, take the Asian Development Bank’s projections. The ADB sees economic expansion of 7.3% in India this year, 6.6% growth in China, better than 5% growth in Malaysia, and Thailand’s economy developing at better than 4%. It did cite tariffs as a risk, but emphasized that they had yet to affect trade. Speaking of tariffs and trade, the E.U. requested a permanent exemption from U.S. import tariffs as May began. It has threatened to levy taxes on €2.8 billion of U.S. exports if the Trump administration’s planned excise taxes take effect.8,9


Look at these gains by benchmarks overseas, which far exceed those of our major stock indices in April: Nikkei 225, 6.83%; CAC 40, 6.84%; BSE Sensex, 6.65%; FTSE 100, 6.42%; Nifty 50, 6.19%; DAX, 4.26%; FTSE Eurofirst 300, 4.11%; IBEX 35, 3.96%. To our south, Mexico’s Bolsa rose 4.84% last month.10

These were not the only significant advances. Australia’s All Ordinaries improved 3.45%; South Korea’s Kospi, 2.84%. Canada’s TSX Composite added 1.57%. MSCI’s World index rose 0.95% in April. There were also some April setbacks. MSCI’s Emerging Markets index fell 0.55%, China’s Shanghai Composite took a 2.67% loss, Taiwan’s TSE 50 slipped 3.24%, and Argentina’s Merval retreated 3.56%.10,11


Two crops recorded the biggest gains among major commodity futures in April. Wheat jumped 14.11%, and cocoa soared 11.13%. WTI crude also rose conspicuously, gaining 5.61% and finishing the month at $68.54 on the NYMEX. Heating oil and unleaded gasoline performed even better than crude, respectively adding 6.27% and 5.94% for April. Other solid gains came for cotton, which rose 3.74%; coffee, which improved 1.86%; natural gas, up 1.35%. Two soft commodities did retreat: sugar slipped 2.35%; soybeans, 0.57%.12

A dollar rally meant a 1.59% advance for the U.S. Dollar Index last month; it closed at 91.58 on April 30. Metals were mixed: copper rose 1.03%, and silver ascended 0.46%, but gold declined 0.63% in April, and platinum lost 2.36%. Gold ended April at $1,316.70 on the COMEX; silver, at $16.36.12,13


The March home buying numbers were positive. Existing home sales improved 1.1% as inventory finally grew a bit (there was still just 3.6 months of supply available). The median sale price of an existing home rose to $250,400. Resales were still down 1.2% year-over-year, according to the National Association of Realtors. New home buying rose 4.0% in March, the Census Bureau stated; that took them to a 4-month high and put the year-over-year sales gain at 8.8%, with the median sale price up 4.8% in 12 months.14,15

Perhaps buyers were eager to try and lock in lower mortgage rates while they could. The rise in mean mortgage rates in April was striking. Freddie Mac’s Primary Mortgage Market Surveys from April 26 and March 29 show the size of the increases. On April 26, the average interest rates on common home loan types were as follows: 30-year fixed, 4.58%; 15-year fixed, 4.02%; 5/1-year adjustable, 3.74%. Look at the numbers from March 29: 30-year FRM, 4.44%; 15-year FRM, 3.90%; 5/1-year ARM, 3.66%.16

The latest S&P CoreLogic Case-Shiller house price index recorded a 6.3% annual advance through February, exceeding the 6.1% year-over-year gain of a month before. Groundbreaking increased 1.9% in March and building permits rose 2.5%; in February, both indicators were in the red. The NAR’s pending home sales index rose 0.4% for March.3,4


At the end of April, the major indices were not far removed from where they were at the start of the month. The S&P 500 added just 0.27%; the Dow Jones Industrial Average 0.25%. The Nasdaq Composite managed a meager 0.04% advance. These minor gains led the big three to the following April 30 settlements: DJIA, 24,163.15; COMP, 7,066.27; S&P, 2,648.05. Small caps had a decent month: the Russell 2000 improved 0.81% to 1,541.88. The CBOE VIX “fear index” ended the month at 15.93, diving 20.23%. The NYSE Arca Biotech Index was up 5.98% YTD through April.1,17

DJIA -2.25 +15.54 +12.57 +8.85
NASDAQ +2.36 +16.00 +22.46 +19.29
S&P 500 -0.96 +10.87 +13.15 +9.11
10 YR TIPS 0.78% 0.41% -0.64% 1.50%

Will investors “sell in May and go away” in 2018 when they have already been selling? Maybe not. Over the last 20 years, the S&P 500 has advanced 70% of the time during May-October, with the mean gain being 1.2% across those six months. Who knows, perhaps greater spring and summer gains than that await. Mid-term elections are ahead, though, and since 1950, the average May-October return for the S&P 500 has been nearly flat in such years. Consider all this history with a few grains of salt, as the past cannot predict future performance. What happens with tariffs, trade pacts, and Syria and North Korea could influence investors enormously in May. In fact, those developments could even set a tone for the market across the next few months. Investors may proceed cautiously this month as they wait for uncertainties to resolve.21

UPCOMING ECONOMIC RELEASES: Across the rest of May, the important news items include: the April employment report from the Department of Labor (5/4), a new Producer Price Index (5/9), the latest Consumer Price Index (5/10), the University of Michigan’s preliminary May consumer sentiment index (5/11), April retail sales (5/15), April housing starts, building permits, and industrial output (5/16), the Conference Board’s April index of leading indicators (5/17), April new home sales (5/23), April existing home sales (5/24), April hard goods orders and the final May University of Michigan consumer sentiment index (5/25), the May Conference Board consumer confidence index (5/29), a second estimate of Q1 GDP from the Bureau of Economic Analysis and the May ADP payrolls report (5/30), and lastly, April pending home sales, April consumer spending, and the latest PCE price index (5/31).
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