May 1, 2017 |

What happened in April?

Stocks advanced as strong corporate earnings boosted performance.

With almost 60% of the S&P 500 companies having reported 1st quarter performance thus far, corporate earnings are expected to rise over 10% from the prior year. This positive performance pushed stocks higher in April as optimism for accommodative trade policies, lower corporate taxes and reduced regulation, which were spawned by the Trump administration, began to fade.

The equity moves in April represented a 4th consecutive monthly gain in the S&P 500 Index in 2017 and six consecutive positive months overall. The rally experienced a shift in beneficiaries as the large-cap growth names have been the big winners in 2017. The S&P 500 Growth Index is +10% YTD while the S&P 500 Value Index is just under +2%. Small-cap stocks, which were a big winner after the Trump election, have cooled off advancing a modest 1.4% YTD. International equities continued to lead the charge with the MSCI ACWI ex-U.S. +2.1% in April and +10.2% YTD.

Moving into May

Economic growth has been more disappointing than many expected with U.S. GDP 1st quarter estimates at 0.7%, below the expected 1%, therefore signaling some hesitation. Sentiment expectations buoyed stocks after the November election but some of the hard data, as measured by consumer spending in auto and retail sales, has yet to follow up. However, the strong corporate earnings in Q1 is a good signal for stocks moving higher in the coming months. We reduced equity exposure slightly in our U.S. tactical strategies and enter May 90% invested while we remain bullish in international markets and are 98% invested.

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↓ Valuation | With a slight increase in price but stronger corporate earnings, equity valuation multiples pulled back to 21.4.

↑ Macroeconomic | U.S. GDP estimates came in at 0.7% for Q1 as auto and retail sales slowed, but the U.S. economy has added jobs every month since 2010.

↑ Sentiment | Equity fund (SPX) flows decreased 2.3% in April with a move towards safe-haven assets like bonds and gold. However, UM Consumer Sentiment moved higher to 97.0.

↑ Technical | Long-term momentum remained strong with the S&P 500 6% above the 200-day moving average while 1% above the 50-day moving average.

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As of 4/30/2017. Data provided by Bloomberg, NorthCoast Asset Management.

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