After starting the year off with a solid first quarter, equity markets continued to sway to the same tune in the month of April. Whether from the 1979 song by the Whispers or the 1967 hit by Sonny & Cher, the line “the beat goes on” can best sum up how the broad indices have performed.
Within the U.S. markets, the S&P 500 and NASDAQ led the way in April, both up over 5%, including dividends. Foreign and small cap stocks, and even commodities, also participated to the upside, though to a lesser degree. Growth stocks, such as technology names, rebounded nicely during the month after struggling in February and March. The April tide seemed to lift all boats.
The overall bond market has been weak so far this year with rising interest rates, although bonds did have a positive showing in April. Not all areas of the bond market have been performing poorly. High yield corporate bond funds, which we hold in some of our strategies, have held up relatively well since they tend to move more in line with the stock market.
When equity markets are in an uptrend and the portfolios have exposure to areas that are leading, they might need only some minor adjustments. During April, we reduced exposure to small-cap stock funds in favor of large caps, and we continued to add exposure to value stock funds.
Two terms you might hear in the financial media are growth stocks and value stocks. Our equity-oriented strategies currently have exposure to both areas as there continues to be a tug-of-war between these two camps with growth leading one day and value leading the next.
Growth stocks generally refer to companies that are expected to grow at a faster rate than the overall stock market. Investors are willing to pay a premium for this higher growth, so these stocks tend to have higher valuations. Technology, biotechnology, and consumer discretionary are examples of what are referred to as growth stocks. Value stocks, on the other hand, are companies considered to be selling at a “discount.” They tend to have lower growth rates and higher dividend payouts. Financials, energy, and basic materials fall into this category.
While most of us look forward to spring, some might welcome the season with trepidation as the spring and summer months are generally considered to be the weakest of the year in terms of stock market performance. The above table, however, shows that is not always the case. Over the past ten years, most May-to-October periods have had positive equity returns. Last year’s recovery from the COVID correction was particularly impressive. It remains to be seen whether investors keep whistling to the tune of “the beat goes on” as we enter the summer months.
Mary Ann Drucker
Assistant Portfolio Manager
Disclosures are available at https://fsainvest.com/disclosures/market-update/.