Powering higher for a sixth month straight, S&P 500 index
funds soared to a new zenith in April.
Strong Q1 earnings reports, falling gas prices and continued
momentum in the housing market offset investor fears over U.S.
government budget cuts, bailout in Cyprus and weak growth in
SPDR S&P 500 (
) added 1.92% in April.PowerShares QQQ (
), tracking the 100 largest nonfinancial stocks on the Nasdaq,
"The advance has come in the face of generally lackluster
economic data and fair earnings reports as investors have focused
primarily on accommodative central bank policies around the
world," Sam Subramanian, founder of AlphaProfit Investments, said
in an email.
"The tepid pace of U.S. economic growth (at an annualized rate
of 2.5% in the first quarter) has reinforced investors' belief
that the Federal Reserve will continue its stimulus measures," he
With a little more than half of S&P 500 companies having
reported Q1 results, earnings are up 3.9% year over year, though
sales are down 0.3%, according to Thomson Reuters. Among those
that reported, 70% beat analysts' estimates, 10% met and nearly
20% missed. More than half missed sales projections.
"Earnings are still very good and that makes valuation models
supportive of even higher prices," said Vinny Catalano, president
of Blue Marble Research Advisory.
Gas prices on average nationally fell 3.5% in April to $3.55 a
gallon, or 9% below 2012's average price of $3.89, according to
AAA. Home prices across the country, as tracked by the S&P
Case-Shiller index of 20 major markets, increased 9.3% in the 12
months ending February. That was the strongest growth rate since
"Strengthening in home prices is a plus for growth through
various channels, including increased consumer spending because
of wealth and confidence effects, increased incentive to buy
before prices go up some more, and increased incentive to lend
because of less chance of mortgages turning delinquent," said Jim
O'Sullivan, chief U.S. economist of High Frequency Economics.
Jim Farrish, founder of SectorExchange.com, recommends
investors lighten up on several defensive areas that have
outperformed among the 10 S&P sectors. He feels they're
overvalued. Represented by SPDR
, the areas areConsumer Staples (
), up 2.94% in April,Utilities (
) up 5.96% andHealth Care (
) up 2.87%. "They will be a buy on a pullback in the broad
markets," Farrish wrote in an email.
Foreign Markets Outperform
Europe and Japan's stock markets climbed the proverbial wall
of worry.IShares MSCI EAFE Index (EFA), tracking developed
foreign markets, surged 5.02% as the dollar slipped against the
euro and bond yields across the region fell to new
lows.CurrencyShares Euro Trust (FXE), measuring the 17-country
currency against the greenback, rose 2.71%.
Investors embraced risk assets on expectations that weak
economic data will prompt governments to unleash more stimuli and
ease austerity measures. The eurozone's unemployment rate rose to
a record 12.1% in March. Consumer price inflation fell to 1.2% in
April, undercutting the European Central Bank's target rate of
just below 2%.
Economists contended the ECB would likely cut the prime
interest rate from 0.75% to 0.50% at its policy meeting
A 25- or 50-basis-point cut would likely fail to inspire
businesses and individuals to borrow money from banks, says
Robert King, an economist at the Jerome Levy Forecasting Center.
In addition, European banks have loads of bad loans on their
books and continue to tighten lending standards.
WisdomTree Japan Hedged Equity (DXJ) surged 10.12% to a
five-year high, pumping this year's vertical ascent to 29%. The
Bank of Japan announced in early April, it aims to double
monetary base to $2.9 trillion by the end of 2014 to achieve a 2%
inflation rate. This follows an unprecedented $116 billion
economic stimulus package unveiled in January.
IShares MSCI Italy (EWI), up 11.44%, outpaced all country ETFs
except Global X FTSE Greece 20 (GREK), up 16.44%, on investor
optimism that the new government will undergo aggressive measures
to jolt the economy. Meanwhile, Italian and Spanish government
bond yields fell to their lowest levels since 2010.
IShares MSCI Emerging Markets Index (EEM) rose 1.22% in April,
snapping a three-month losing streak. The commodity-dependent
economies have lagged global markets this year because of
overproduction of steel, copper and oil coupled with waning
demand from developed countries and weaker-than-expected GDP
growth in China.
SPDR Gold Shares (GLD), the largest ETF tracking the yellow
metal, ended the month down 7.57%. It's tumbled 23% from its
historic 2011 high. GLD rebounded after tumbling a whopping 14%
over two sessions midmonth on fears that Cyprus and other
European countries would sell their gold reserves to pay for
bailouts and expectations for deflation.
The silver lining in the sell-off has been increased physical
demand for bullion, coins and jewelry, especially in China and
India, which account for half of global demand.
Gold miner ETFs crashed hardest in April.Market Vectors Gold
Miners (GDX) collapsed 19.79% to a four-year low.Market Vectors
Junior Gold Miners (GDXJ) crashed 23.42% to new all-time
low.IShares Silver Trust (SLV) fell 14.47%.