Posted April 30, 2018

14th Consecutive April Gains


April has traditionally been one of the better months for the stock market as money flows into retirement accounts ahead of the tax filing deadline. In fact, April has ended the month in positive territory for the last 13 years.  The month got off to a rough start this year, but by the end of the month, the widely followed S&P 500 had, despite a final day decline, closed higher for a 14th consecutive April.  Concerns about a trade war dominated trading in the early going, but then earnings reports started to flow in and thus far, they have been better than even the elevated expectations.  During the month we saw interest rates rise to a 4 year high, which is problematic for longer term bond holdings, and oil prices hit a 3 year high.  We also saw the United States retaliate against Syria’s use of chemical weapons, but despite all of the background “noise”, the S&P 500 did manage to gain .3% for the month, but is still .9% lower for the year.

The first week of the month was the most volatile with a 750 point drop in the early going on Monday, that ended with a 460 closing loss for the Dow, as large cap tech weighed on the market. The following day large cap tech had a better tone and the Dow rallied 390 points.  Wednesday China said they were willing to talk about tariffs which sent the Dow 230 points higher and that rally continued into Thursday, with the Dow gaining a total of 1100 points from the previous day’s low.  The last day of the week we learned a far less than expected 103,000 new jobs were created in March, a 6 month low, and traders decided to take profits, driving the Dow nearly 800 points lower before closing down 570.  At the end of the week the widely followed S&P 500 had lost 1.4%.  The second week was the strongest of the month as Trump softened his tone with China and they responded with comments that suggested they were open to reducing tariffs in an effort to make their economy more open.  The Dow rallied nearly 800 points during the first 3 days and then drifted lower to end the week on concerns about a retaliatory attack against Syria.  The S&P 500 ended the week with an impressive 2% gain.  The following weekend the U S did retaliate against Syria and on Monday, when the market did not have a negative reaction, traders hit the buy button sending the Dow 200 points higher.  The following day we started to see Q1 earnings and they were generally stronger than expected, sending the Dow up another 200 points.  On Thursday IBM’s disappointing earnings gave that stock its worst day in 4 years and that weighed on the Dow.  The week ended with selling in shares of Apple, on concerns about weak iPhone sales, and that weighed on the Dow.  At the end of the week the S&P 500 had managed to gain .5%.  The last week of the month was all about earnings and Caterpillar, who after reporting stronger than expected earnings, said in their conference call that this may be the “high water” mark for this year.  The stock went from a 6% opening gain to a 6% closing loss and that weighed on the overall market.  Blow out numbers from Boeing on Wednesday, Facebook on Thursday and Amazon on Friday helped, but the S&P 500, despite those strong reports, ended the week unchanged as it could not shake the Caterpillar Contagion.  For the market to move higher we are going to need earnings reports to continue strong, and we are going to need to shake the belief that this may be as good as it gets.

“Sell in May and go away”. An old adage we hear every year at this time that harkens back to a day before computers, when Wall Street traders would go to cash before heading out on their summer vacations.  May is one of only 2 months that have averaged a negative return over the past 90 years, but the month has closed higher 58% of the time and the average loss has been a mere .1%.   Over the past few months we have been concerned about the market being “richly valued’, but rising earnings and a 7% decline from the all-time high, has mitigated that concern.  We expect earnings reports to continue strong early in the month, but we believe most investors will be watching interest rates.  Rising rates is something to be expected in a strengthening economy, but if they rise too quickly it could become a problem for stocks.  Oil prices in the $60 to $70 range are not too high to be of concern, and are high enough to allow producers a nice profit.  Again, a strong move up or down in oil prices could pose problems.  We continue to be optimistic about the strengthening economic recovery and will be buyers on tradeable dips.

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