April is traditionally one of the better months for the stock market as investors pour money into retirement accounts as they file their tax returns. The IRS has extended the filing deadline to May 17, and we wondered if that might push some of the retirement account deposits from April to May this year. The market began on Maundy Thursday with a nice rally ahead of the 3-day Easter weekend and never looked back.
Increasing vaccinations, declining U.S. COVID cases, strong corporate earnings, and strengthening economic numbers sent the market steadily higher throughout the month. At the end of the month, the S&P 500 had managed to gain 5.2%. This was its best month since November and is now 11.3% higher for the year. Interest rates edged lower during the month, but oil was up nearly 8%, and gold gained 3%.
The month began with the market closed for Good Friday, but that did not stop the government from reporting over 900,000 jobs were reoccupied in March, 35% above what most had expected. We started to see the first Q1 earnings reports, and they were strong, as were most economic numbers during the week. Technology stocks had been weak on concerns about rising interest rates but rallied this week as interest rates edged lower.
At the end of the week, the S&P 500 had gained almost 3%. The second full week of the month, we started to see Q1 earnings reports, and they were generally much better than even the lofty expectations. Johnson & Johnson’s one-shot vaccine was temporarily suspended that week and cryptocurrency exchange Coinbase made their much-anticipated debut. The World Health Organization said COVID cases outside the U.S. were approaching the all-time high, but here the economy was picking up momentum, sending the S&P 500 up another 1.4%. The 3rd full week was filled with great earnings reports, but Biden’s proposal to dramatically increase the capital gains tax on the wealthy was a wet blanket.
April’s “flash” PMI shows the economy rebounding at the strongest rate in history but, despite all of the good news, the S&P 500 ended the week with a .1% loss. Impressive corporate earnings reports dominated the last week of the month, but after rallying more than 5% during the first three weeks of April, the market appeared to be in a mood to simply digest those gains.
May is one of only two months that have, on average, closed with the market losing ground. This year may be different as there are likely to be more funds put into retirement accounts in May than in previous years. The excitement over the economic reopening and what could be the most robust six months for our economy in history have driven stock prices to lofty levels. By almost any measure, the market is richly valued. A 5% to 10% pullback can come at any time, but this is not the type of environment where one would expect, barring a headline-making event, to see the market down dramatically. Most of the news over the next six months is expected to be good news as the country reopens. We have been buyers on tradeable declines for the past year and continue to believe that is the correct approach. We all know the term “follow the money,” and the money is flowing into the stock market.
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