Hard to believe another month has come and gone, but as they say, “time flies when you are having fun!” We may be having fun, but the markets are struggling to find their footing currently. To put it all in perspective the returns for the seven asset classes in April are:
- Total US Market ETF (VTI)- down 0.01% (April) & up 1.6% (YTD)
- Total US Bond ETF (BND) – up 0.55% (April) & up 1.99% (YTD) + dividend
- EAFE Indes (EFA) – up 1.73% (April) & down 1.89% (YTD)
- International Bonds (EMB) – up 0.75% (April) & up 3.8% (YTD) + dividend
- Commodities (DBC)- up 1.19% (April) & up 3.04% (YTD)
- Currency (UUP) – down 0.89% (April) & down 1.16% (YTD)
- Real Estate (IYR) – up 2.87% (April) & up 10.35% (YTD)
The month was very mixed for the asset classes with the EAFE, commodities and real estate leading the upside. Rotation was the theme for the month as the money moved from US stocks to “safer” ground as well as global assets. The primary question looking towards May is what will lead, if anything? The consensus in the media is for a correction heading towards the summer months and plenty of headlines quoting, “sell in May and go away”. It is that uncertainty that is driving traders crazy and worrying investors. I am one of the first to say I like volatility, but I don’t like day-to-day in opposite directions. That choppy mindset shows that investors lack any conviction about what is working and what is not.
Real estate has been the clear winner year-to-date with double digit return. It gained another 2.8% in April. Today it closed above the resistance point at $68.40. How much more upside does it have? For me you have to hold, manage your stops to protect the gains, but if you look at a weekly chart the sector broke from a cup & handle pattern and has relatively clear sailing for roughly a 5-6% upside move. That is worth holding and potentially adding to the position with the right confirmation on the current move higher.
Commodities had a good month with energy and agriculture sub-sectors leading the way. The Agriculture space has been lead by coffee (JO). The upside remains in play (DBA) breaking to new high and the Agg business stocks making a break from the consolidation pattern as well. Energy stocks are looking tired at the current levels, but have enjoyed a good run higher… the commodities are finding it tough sledding as well, and I would tighten stops and evaluate if the upside is going to continue. Worth keeping on our watch list going forward.
The global space has been under the uncertainty microscope of Russia and Ukraine. If this was not in the press and on analyst lips the upside in the global markets would have been much better in April. The EAFE index still pushed higher and today broke to a new high in EFA. Europe (IEV) has been a driver in that move and broke to a new high yesterday. The emerging markets are positive after testing lower on fear relative to Russia, but are still working to regain the upside in the current consolidation pattern setup. This is one asset class to watch and scan going into May.
Bonds and US Treasury bonds are becoming more volatile as the Fed flirts with stimulus cuts and interest rate hikes. So far the cuts have been to the QE eternity from $85 billion to $45 billion per month. That started the uncertainty relative to the Fed and it remains in play currently. The FOMC meeting today only validated to me they still are clueless about what is the next real plan for stimulating the economic picture. Tight stops here in the event interest rates decide to believe the Fed and yields start to rise. This is a trade for now.
Overall April had a worse reputation than the numbers showed in the end. The rally off the low on April 15th has helped push many of the sectors back into positive territory for the month. The move has been more manufactured than a natural progression of growth in the economy and earnings. Therefore, we enter May with concerns and caution about what the future holds. As with any position, measure your risk currently to the outlook. Determine your exit points based on the measure of risk you are willing to accept. Be disciplined and add new positions based on the same criteria of risk/reward and time horizon. Not all assets are created equal and we need to determine the strategy prior to putting our money at risk not after the fact. Remain patient and hopefully we will say that April showers, brought May flowers.