Key Points:
- US GDP grew 6.4% in the first quarter following an increase in confidence.
- Growth sectors of the market came back into favor after strong earnings reports from big tech and consumer firms.
- Treasury yields dropped in April giving a rise to the bond market.
Gross domestic product grew at a seasonally adjusted 6.4% for the first quarter bringing the US economy within 1% of its peak, prior to the pandemic. Economic reopening in the US continues to add confidence behind inoculations, falling coronavirus case numbers and fresh stimulus dollars in consumers’ pockets. Along with the resurging US consumer, government spending on aid to businesses, vaccines and stimulus has helped fuel economic growth. According to the Bureau of Labor Statistics, the unemployment rate declined to 6% during April as businesses plan for the post pandemic recovery.
The S&P500 gained 5.34% in April, pushing its return for the year to 11.84%. Real estate (+8.28%), communication services (+7.85%) and consumer discretionary (+7.1%) were the best performing sectors following strong corporate earnings reports. While all major stock sectors were positive for the month, energy cooled of gaining just 0.59% after a strong rebound from last year. Growth stocks came back into favor with the Russell 1000 Growth up 7.69% vs. 3.95% for the Russell 1000 Value. Strong earnings reports from Apple, Google, Facebook and Amazon attracted investors back to growth, after a rotation towards traditional value names over the past 6 months.
International markets continue to lag the US with the developed MSCI EAFE Index gaining 3.01% in April and 6.59% for the year. Emerging markets +2.49% in April have been hurt by fresh coronavirus outbreaks in Latin America and India. European stocks fared well +4.54% with news of lifting restrictions and curfews in the coming months. The Eurozone economy remains sluggish and may even contract in the first quarter according to T.Rowe Price. Asian markets gained 1.03% for April and are up 3.34% for the year.
Investment grade bonds saw their first positive month of the year with the Bloomberg Barclays US Agg Bond Index up 0.79% for April. Interest rates fell for Treasury Notes and Bonds after a steep climb to start the year. Investors have been worried about inflation resulting from the strong economic recovery and massive amount of liquidity in the system. The rise in gasoline prices moved inflation higher than expected in March, but still within the Federal Reserve’s target. Limited supplies in consumer goods like bikes and cars, along with building materials, could continue to push prices higher until supply chains are back online to meet the demand. The Fed maintained its accommodative stance and will likely taper asset purchases before it raises rates to contain inflation beyond their target.
Sources: Morningstar Direct, Wall Street Journal, BLS, T. Rowe Price