Post-Stimulus Boost, COVID-19 Cases Declining and Robust Corporate Earnings
April was another strong month for the stock market with the S&P 500 gaining 5.3%. Markets were boosted by the benefits of the $1.9 trillion stimulus package passed in March, as well as by rising consumer confidence as new COVID-19 cases declined nationwide. The combined effects of the stimulus and a more positive U.S. consumer translated into robust corporate earnings growth, which in turn drove strong performance.
The month’s returns were a good example of the correlation between stock market returns and growing corporate earnings. Many of the companies who announced first quarter earnings have reported both robust economic growth and very strong forward guidance. All eleven S&P 500 sectors expect to show positive growth in the upcoming month, averaging an astonishing 60% year-over-year (FactSet Research).
What Didn't Work
International markets also performed well, but once again lagged U.S. returns. The U.S. Large Cap (S&P 500), Mid Cap (Russell Mid Cap) and Small Cap (Russell 2000) indices gained a collective 4.2% in April, while the MSCI EAFE International index gained 3.0%. International returns reflected mixed results in the fight against COVID-19, as global daily cases continue to make all-time highs. Fixed Income (Barcap Intermediate Govt./Credit) experienced a modest 0.5% gain during the month but is still negative on the year due to concerns over rising interest rates and inflation.
What We're Watching
As we move through the second quarter of the year, we expect to see robust year-over-year economic growth. Businesses are reopening, stimulus money is flowing, and consumers are spending. This strong backdrop will not come without headwinds, as rising inflation, increasing U.S. debt levels, and congressional debate around future infrastructure and social spending plans are likely to cause bumps in the road. We are cognizant of each of these challenges, but in the near term expect the economic rebound from COVID-19 to offset these headwinds.
From a financial planning perspective, we have been reviewing and monitoring proposed tax changes that may impact your financial plan. While in most case we believe it is too soon to make major changes, we want to be prepared and if warranted we may recommend updates to your plan based on changes regarding income, estate, and gift taxation. Please contact us if you have specific questions or scenarios you would like us to review.
We are happy to announce that our office is now 100% open. We are able to schedule in-person client meetings while adhering to COVID protocols and guidelines outlined by the US Centers of Disease Control. We will continue to offer virtual options as well.
As always, we welcome your questions or comments.
Past Performance is no guarantee of future results. All investments carry some level of risk. The S&P 500 Index is an unmanaged, market capitalization weighted index of 500 common stocks widely regarded to be representative of the US market in general. Russell 2000® Index (U.S. Small Caps): Measures the performance of the 2,000 smallest companies in the Russell 3000®Index, which represent approximately 10% of the total market capitalization of the Russell 3000® Index. Russell Midcap® Index: Measures the performance of the 800 smallest companies of the Russell 1000® Index, which represents approximately 36% of the total capitalization of the Russell 1000® Index which is a mid‐cap index. MSCI EAFE Index: Measures the equity market performance of developed markets outside of the U.S. & Canada. MSCI EM Index: Captures large and mid cap representation across 24 Emerging Markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country. Barclays Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Indices are unmanaged and direct investment is not possible. The opinions expressed are those of the author and not necessarily those of Robert W. Baird & Co. Incorporated.