Monthly Market Report: April 2023
Stock Markets Climb in April
Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA, CFP
Developed Markets Continue to Climb
In the month of April, international developed stock markets returned 2.84%. The UK and Europe ex UK recorded returns of 5.31% and 3.82%, respectively. Pacific ex Japan and Japan lagged other markets. International developed markets are up 11.09% YTD while the U.S. market is up 8.93%. International developed markets have outperformed on balance, benefiting from a weaker U.S. dollar, higher European earnings growth and lower valuations heading into this year. The current rally in the U.S. market is mainly due to the outperformance of a small number of mega-cap stocks.
Broader emerging markets posted a -1.00% return for the month. India and Brazil recorded returns of 4.17% and 3.40%, respectively. China and Korea lagged other markets in April. China’s abrupt reversal of its zero-Covid policy has brightened the country’s economic outlook. Low valuations relative to the U.S. and international markets may help emerging market investors going forward.
Energy and consumer staples recorded returns of 4.20% and 4.07%, respectively, in April. Consumer discretionary and materials lagged other sectors this month. The information technology sector has rebounded this year after its steep 2022 decline. Much of the rally in this sector has been due to retail investors buying these stocks as opposed to institutional investors. Increasing use of ODTE (zero days to expiry) options, the possibility of short covering and the gains restricted to only a few technology companies may make this rally short lived. Further tightening of monetary policy by central banks could create a tough environment for the information technology sector.
In April, value outperformed growth in the large-cap space but underperformed in the small-cap space. Momentum recorded a return of 3.45%. Value stocks across the world continue to trade at large discounts relative to growth stocks. Value-oriented sectors such as energy, financials, and materials may still have much more room to run.
In the international developed markets, value outperformed growth in the large-cap space and small-cap space for the month. Momentum recorded a return of 3.40% while small-cap emerging market stocks posted a return of 0.85%. Valuations of value stocks are still very low relative to growth stocks in both international developed and emerging markets, which is consistent with the US market. Rising interest rates may also pose more of a risk to growth stocks than value stocks.
In April, the three-month Treasury bill index returned 0.31%. From the beginning of 2022 through the end of March 2023, the annualized interest rate on the 90-day Treasury bill increased from 0.08% to 5.10%. Savers are now getting paid much more interest. However, they still face low real interest rates due to inflation remaining high as the CPI increased by 4.99% over the past year through the end of March. This means the real return to cash investors is still small even before considering taxes.
The returns of deflationary hedges were mostly positive for the month. The Bloomberg Barclays U.S. Agg Bond Index returned 0.61% for the month. In April, leveraged loans and high yield bonds were up 1.05% and 0.97%, respectively. Municipal bonds lagged the market. Catastrophe bonds were up 1.74% for the month and are up 6.82% YTD. Insurance-linked securities like catastrophe bonds are benefiting from higher premiums that insurance companies are demanding from buyers. The higher premiums are a result of the larger realized losses in recent years experienced by the insurance companies.
Inflation-sensitive investment returns were mixed for the month. International real estate and infrastructure returned 3.44% and 2.62%, respectively, in April. The Bloomberg Commodity index posted a return of -0.75%. Gold bullion is up 9.31% YTD. Oil prices were down for the month, but oil markets continue to be tight. Capital expenditures by oil companies have been muted in recent years, which will impact future supply. Consumers may face spikes in oil prices if demand picks up and supply remains constrained.
Over the past three months, the U.S. dollar depreciated against the Euro, British Pound, Mexican Peso and Swiss Franc. Over the past year, the U.S. dollar strengthened against the Japanese Yen, Australian dollar, and Chinese Yuan. The continuation of U.S. fiscal and trade deficits may weigh on the U.S. dollar in the medium-term to long-term. Gross federal debt to GDP stands at 121% and is forecasted to increase throughout the decade.
Brandon conducts investment due diligence for Versant Capital Management, and designs and implements tools and processes to support the firm’s research. His background in biology and finance help him to look at challenges from multiple angles, resulting in unique and well-rounded approaches and solutions.
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