April proved to be a choppy month for global equities. Nonetheless, overall the markets delivered fair gains as long as investors were diversified. The MSCI World Index returned 1.02%. U.S. Large Caps, as measured by the S&P 500 Index, returned 0.47%. International developed equities, as measured by the MSCI EAFE, returned 1.53%. The MSCI European Equity Index advanced 2.49%, while its Pacific Rim counterpart regretfully lost 0.71%. As for the MSCI Emerging Market Equity Index, total returns were a shy 0.33%.
Turning to the bond market, Barclay's U.S. Aggregate Bond Index finished the month returning 0.84%. Total returns for the S&P National AMT Free Municipal Bond Index advanced 1.26%. High-Grade US bonds out-shined lower-quality high-yielding credits. Specifically, Barclay's U.S. Investment Grade Index returned 1.19% versus 0.63% for the High-Yield Index. Looking at the Treasury market, inflation protected securities returned 1.35%. The ten-year note finished lower at 2.62%. And the long-dated, thirty-year bond ended down at 3.47% after flirting with 4% at the start of the year. In spite of weak economic signals from the bond market, the Fed held steady on their bond purchase tapering.
In other markets, Dow-Jones US REIT Index returned 3.68%. The S&P Developed ex US REIT Index returned 4.11%. And the Dow Jones AIG Commodity Index, led by agriculture, energy, and bullion, rallied, finished April with solid 2.44% returns.
Is it Time to Worry About a Stock Market Bubble?
While the rest of the economy has been growing slowly for the last five years, stocks have more than doubled. According to data from Nobel Laureate Robert Shiller, relative to long-term corporate earnings, stocks have been more expensive only three times over the last century. Obviously no one can predict where stocks are headed. But one can control their response to market fluctuations. Investment planning is intrinsically tied to uncertainty and involves balancing conflicting objectives, such as capital preservation and funding future goals.
A strategy that effectively manages the risk involved in achieving one objective may do a poor job in managing the risk associated with the other. Since there is no way to reliably time the market, the sensible path for most investors is to identify a diversified asset allocation consistent with one’s priorities and risk tolerance, err on the side of conservatism and commit to this strategy for the long-term, regardless of the market environment. In the words of Robert Shiller, the most likely outcome may be poorer returns in coming years then the stock market has delivered over the recent past, but still better than the returns of any other investment class. I couldn’t agree more.