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Capital Markets Review & Commentary

Trade war rhetoric eased in April, and daily market volatility retreated in tandem. Signs of inflation and slowly rising interest rates spurred gains in the dollar and moderated enthusiasm for equities, especially in emerging markets. The end result was a flattish month for stocks and moderate declines for bonds.

Amid ongoing political and geopolitical drama, corporate earnings continue to impress. Estimated Q1 earnings growth for the S&P 500 is 23%, according to FactSet. While driven largely by tax cuts, this marks the highest rate since 2010 and is impressive this deep into a bull market.

Strong earnings results from the FAANG stocks helped them rebound from the Facebook controversy in March. Still, sector leadership rotated nearly daily during April, and energy was the best performing sector for the month. Small caps outperformed, marking another diversion from 2017 trends when large growth, high momentum stocks dominated. We view this more diversified market leadership as healthy when taking a longer term view.

Ten-year Treasury yields briefly crossed 3% late in the month. People love round numbers and associate importance to them, but there is nothing magical about a 3% yield, which is historically still low. Overall rates remain conducive to investment and don’t seem to be slowing earnings growth.

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