April could have been a lot worse for US risk assets…the S&P 500 hit 4,835 on April 7th, off 21% from its all-time high on an intra-day basis and off 14% for April, while the yield on the US 10 Year Note hit 4.47% on the 11th and the ICE US Dollar Index touched 97.9 on April 21st, as the greenback sold off 6% month to date.
The catalyst for the move lower in markets was President Trump’s baseline and reciprocal tariffs announced on April 2nd. Then, the President announced a 90-day pause on most tariffs and markets caught a bid. For April, the S&P 500 fell just 0.7%, the Bloomberg US Aggregate rose 0.4% and the Dollar dropped a more modest 4.4%.
International stocks were also volatile in April but fared much better than their US counterparts, with the MSCI EAFE Index gaining 4.7% and the MSCI EM Index gaining 1.3%. We think ex-US markets will continue to find favor due to attractive valuations, improving policy outlooks and a US Dollar that should remain on the back foot.
A look ahead…
The Fed meets May 6th and 7th, and while the Fed isn’t expected to cut rates, Wall Street should take comfort in another meeting with Jay Powell as Chair, considering the recent talk from the Trump Administration about firing Mr. Powell, a move that would have likely proven both unconstitutional and deeply upsetting to global markets.
With all the focus on trade, it’s easy to forget we are deep into earnings season, with 182 of the S&P 500 having reported Q1 results, and 63% and 73% topping sales and earnings expectations. The tricky thing is given the economic uncertainty, companies are reluctant to provide Wall Street with much, if any, financial guidance.
Speaker of the House Mike Johnson (R-La.) recently told reporters Republicans will pass President Trump’s tax agenda by Memorial Day, a fiscal policy development that we think would be most welcomed on Wall Street.
A look at a datapoint worth discussing…
While we are in the seasonally weak stretch for stocks (“Sell In May And Go Away”), there could be more good news than bad on the horizon for markets (trade deals could get done and Republicans could pass a tax bill).
Then there is the recent dramatic spike in bearish sentiment. When the AAII Investor Sentiment Survey registered 60%+ bearish readings in the past, stocks have always been higher 12 months on. Fingers crossed.
