Markets rallied again in April with virtually all U.S. and international equity indices rising, and most by several percentage points – including the S&P 500, which rose 4% for the month. In the U.S., the continued rally was supported by solid corporate earnings announcements, with the majority of reporting S&P 500 companies outperforming market expectations.
U.S. macroeconomic data – such as private sector employment gains, GDP growth, and consumer confidence – also remains constructive. Employment gains, as measured by ADP, rose by 275,000 in April versus the market expectations of +180,000. Meanwhile, first quarter GDP growth came in at 3.2%, well above the market estimates, which called for 2.3%. While the headline number was very strong, the underlying drivers suggest this growth rate is not likely to be sustainable, which we believe is well understood by the market. Consumer confidence climbed to 129.2, up from 124.2 in March.
These data points instill confidence in the investment community to continue buying stocks, even as the S&P 500 hits record highs. Indeed, the strong markets have led to renewed discussion of a market “melt-up,” which describes a market with significant positive momentum leading to increasingly rapid gains. Importantly, a melt-up is not synonymous with a bubble, and it is worth noting that valuations are not indicative of such.
Elsewhere, bond yields climbed slightly for the month following the significant drop in March, and most fixed income indices climbed modestly.
From a geopolitical standpoint, the Britons managed to kick the can down the road a bit further on Brexit negotiations and avoided a hard no-deal scenario (at least for now). Finally, we continue to monitor trade negotiations with China, which remain ongoing, but are still believed to be constructive.
The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.