Much like the weather patterns in the Midwest, March came in like lion with the S&P 500 hitting an all-time high in early March, but returns were then flattish through most of the rest of March and  through early April, before a late month rally again pushed stocks to new highs. For the month of April, the S&P 500 was up 1.03% with most of that gain coming in the last week of the month. For  the year, the S&P 500 is now up 7.2%.

Internationally, the news is even better. For the year, the MSCI EAFE Developed Market Index up 10.2%, the MSCI Emerging Market Index up 13.9% and the MSCI EAFE Developed Small Cap Index up 12.8%. International returns have trailed the U.S. stock market for the past four years leading to lower valuations, so part of the international stock market rally is the rest of the world playing “catch-up” this year vs. the U.S. stock market. Investors are reaping the benefits this year of higher international stock returns via global diversification.

However, we caution investors, volatility so far this year has been muted; in fact, it has been at the lowest levels since 1995 and the fourth lowest in history at this stage of the year. To paraphrase  from the popular HBO TV show, Game of Thrones, “volatility is coming.” We know more volatility is coming, we just do not when or what will cause it, but a stock market correction is out there in  the future at some point. These corrections are tough, if not impossible to predict in advance. The best defense against future volatility is the proper mindset to ride out the storm and to stick with a prudent asset allocation strategy in a globally diversified portfolio.

It appears a combination of low interest rates, low inflation, strong corporate earnings and optimism over future tax reform and  de-regulation is helping to fuel the rally. These factors have “trumped”, please pardon the pun, geo-political concerns, at least so far this year. With a little over 80% of the S&P 500 having reported earnings so far this year, first quarter earnings are up 14%, the strongest quarterly gain in several years. Approximately 75% of the companies have beaten earnings expectations, which is slightly better than the normal distribution.

On the bond side, returns have trailed the stock market, but are still positive for the year. The 10-year government bond yield ended the month at 2.28% vs. 2.39%, the previous month and below the yearend level of 2.45% at the end of last year. For the year, the Barclay’s Aggregate Bond Index was up 1.6% and the S&P National Muni Index was up 2.0%, while the Barclay’s High Yield Index was up 3.9%.
Capital Updates image associated with this months blog post.

David can be reached at 314-889-1096 or through email at