With the first 1/3 of the year in the books, we find the S&P 500 up 9.06%, most equity categories within a couple of percentage points either side of that, and bond funds managing very small gains. While the threat of a 20% decline for stocks is out there lurking, the S&P 500’s technical breakout above the 1344 level in late April, along with the stubbornly high bullish sentiment in several surveys I follow, leads me to the following conclusion: there is big trouble out there, but you can’t wake up every day expecting it to happen. Stocks are brushing off bad news from all sides, benefitting greatly from the lack of competition from bonds and cash rates, and trudging higher. Meanwhile, the U.S. Dollar, which helped many multi-national businesses post strong earnings for the latest quarter, continues to hit new lows.
Something has to give … it just doesn’t have to give when we think it should. The only thing that matters is what the market does, and right now, around the globe. Smart diversification and risk management are your best friends in a market that may seem extended to some of us.
An encouraging round of corporate earnings reports in the U.S. and around the globe provided the fuel for a strong rally in the stock market during April. What we have seen is that a recovery from the depths of early 2009 is in progress. What we don’t know is whether the current strength is sustainable, or whether easy money from the Fed is stoking the rally, which has now produced more than a doubling of stock prices (based on the S&P 500’s value) in just over two years. That debate is outside the scope of this column, so let’s proceed to the tale of the tape for April: which mutual fund styles (according to Morningstar’s tracking) did well and which did not.
The month started out on the downside, and by April 18 the S&P 500 was down 1.67% from the end of March. But from that point until the end of the month, the index gained 3.36% to post gain of 2.96% for the month.
Several market segments performed well. Healthcare funds gained 6.74% and European funds advanced 6.13% to lead the pack. The former had lagged the S&P during this two-year rally, so some catching up occurred in April.
All major foreign stock categories advanced between 4.8% and 5.8%, and both US and non-US Real Estate funds were strong. New records in the spot prices of gold and silver pushed Equity Precious Metals and Commodity Broad Basket funds up over 4% each. Japan continued to jump and dive during the month, but the post-quake volatility seems to be calming. Japan funds ended a volatile month up 2.42%.
Bonds had yet another modest flight to quality during the month, with Long Government funds up 2.35%. It remains to be seen how bonds hold up as the Fed’s Quantitative Easing program ends in June. Most bond fund categories posted gains between 1-2% for the month, though TIPS funds outperformed (up 2.28%).
New alternative categories
Morningstar added some new categories, particularly in the alternative mutual funds area, and those will be incorporated into next month’s column.
*The S&P 500 is an unmanaged index that cannot be invested in directly. Past performance is not a guarantee of future returns. All financial figures have been pulled from Morningstar. The opinions expressed in this article were of a general and educational purpose only and should not be relied upon as investment or financial advice. For advice concerning your own unique situation please see your professional advisor. No investment strategy can assure success or protection of profits as investments are inherently risky and subject to market volatility.
Robert A. Isbitts, a 25-year industry veteran, is a published author, and the chief investment officer for CWM LLC. He writes a monthly column on the markets using Morningstar data. Prior to joining CWM, LLC, Mr. Isbitts spent 12 years at Emerald Asset Advisors, LLC, a firm he co-founded 1998. While at Emerald, he served as Chief Investment Officer, chaired the firm’s Investment Committee, and was responsible for all final investment decisions. During this time, Mr. Isbitts published two books, Wall Street’s Bull and How to Bear It and The Flexible Investing Playbook. Mr. Isbitts is based in South Florida, happily married to his wife Dana since 1992, and has three children, a dog, a cat and a passion for baseball.