April Showers Can’t Dampen Markets

Despite some volatility throughout the month, especially in the so-called “momentum stocks,” the S&P 500 was pretty flat for the month. The NASDAQ, which is home to many of the bio-tech and technology stocks that suffered the most volatility in April, finished down about 2% but had been down as much as 6% midway through the month.

Most of the volatility surrounded stocks whose valuations had become pretty extended in the months leading up to the April pullback. Bio-techs and popular social media stocks had been trading as if they could do no wrong, as is often the case, the market caught a lot of investors by surprise and many of those individual stocks were down 20% or more.

Tensions in Ukraine continued to weigh on markets, and we would note that — due at least in part to the situation in Ukraine — oils prices have steadily risen over the past months. As we’ve mentioned before, the economy can be quite sensitive to oil prices. Falling oil prices provide a much needed tailwind to the economy. But rising oil prices can put a strain on consumers and businesses alike.

There was plenty of good news in April, with an encouraging jobs report (+215,000) to start the month, and other data that seemed to confirm the earlier thesis that cold winter weather was to blame for some of the sluggish data from earlier in the year. In addition, bond yields remained fairly low, with the yield on the 10-year treasury between 2.6 – 2.7%, which is down from the December 2013 close of just over 3%. Perhaps most significantly, corporate earnings continued to support the notion that the economy was strengthening, albeit at a frustratingly slow pace.

We now turn our attention to May, where we’re waiting to see whether April showers will lead to May flowers for the markets and economy. Or, will the old cliche “Sell in May and go away” prove to be the winning strategy? From our standpoint, we continue to believe that there are some good values out there in investing, but we believe that the importance of good, solid stock-picking will become even more apparent as the year progresses.

Thanks for reading.

Carl Beck

5/6/2014

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