John Gorlow
| May 06, 2013
April Review
Despite worries that federal spending cuts and higher taxes would lead to an economic slump, the S&P 500 finished the month up 1.81%, at a new all-time closing high, bringing YTD total returns for the index to 12.74%. U.S. asset class returns ranged from 2.12% for large growth stocks to negative 0.66% for small cap growth stocks. Across the size spectrum, large caps outperformed small caps. Across the style spectrum, large cap growth did better than large cap value; however, small cap value outperformed small cap growth.
This is the longest stretch of gains on the S&P 500 since the 7 month run, starting in March 2009, after the market hit a financial crisis low. With the S&P hitting new highs, there is an implication by the “experts” that we should all be doing something or at least thinking about it. The problem with this mentality is that markets aren’t predictable. Corrections can occur at any time and markets are always susceptible to unanticipated shocks. Further, commonly cited valuation signals have low correlation to future returns even over long time horizons. This lack of predictability isn’t surprising given the poor track record of market-timing and related tactical asset allocation strategies. This underscores the importance of adhering to a well-conceived, long-term, diversified investment plan rooted in a sound investment philosophy, managed by disciplined periodic rebalancing and based on the things that matter to us.
International developed markets performed better than domestic markets as European markets rebounded after Greece reached a deal for more bailout money and Japan continued to outperform on expectations for their current stimulus program. European stocks gained 4.34%. Japanese stocks gained 8.11%. The MSCI EAFE index returned 5.21% bringing its YTD return to 10.61%. Asset class returns ranged from 5.61% for large value to 1.94% for small growth. Across the size spectrum, large caps did better than small cap stocks. There was a positive marketwide premium for value stocks.
The Emerging markets gained, but continued to underperform the developed markets. Large caps returned 0.75% in April, but remained down 0.88% since the start of the year. Small caps, up 2.03% for the month and 6.32% YTD, widely outperformed large caps. Real Estate securities (REITs) were among the top performing asset classes. Domestics REITs gained 6.88% and Foreign REITs gained 5.25%. Gold prices tumbled 8% in April as commodity markets, measured by the Dow Jones AIG index, fell 2.24% for the period.
Treasuries rallied as the yield on the S&P 7-10 Year US Treasury Bond Index dropped to a YTD low of 1.39% at month-end. The Fed’s monthly stimulus buying continued as unemployment remained above 6.5% and inflation below its 2.5% target. Economic data varied throughout the month, but indicated a slow recovery with improving numbers in housing.
High-yield corporate bonds gained 1.84% for April and 3.34% YTD, while investment-grade corporate bonds followed with a 1.61% gain MTD and 2.42% YTD. International Treasury bonds returned 2.37% in April, aided by a weakening U.S. dollar. However, the index is still down 0.50% for the year due to negative returns in February (-2.23%) and March (-0.57%). The S&P National AMT-Free Municipal Bond Index, which tracks investment-grade bonds, returned a positive 1.15% in April as yields moved down from 2.1% at the end of March to 1.97% at the end of April. Year-to-date (YTD), the index has returned 1.5%.