By: Gene Walden, Senior Finance Editor May 01, 2018
Rising yields on 10-year U.S. Treasuries peeked over 3% for the first time in more than four years during April, contributing to the continuing volatility of the stock market.
The rise in interest rates has come following a series of small increases in the Fed Funds rate (which is the rate financial institutions charge each other for overnight loans). The Federal Reserve (Fed) had gradually raised the rate from approximately 0% to a target of 1.5% to 1.75% through six rate hikes from December 2015 through March 2018. The Fed has indicated that there may be two or possibly three more rate hikes during 2018.
Other factors contributing to the rise in interest rates include expectations for higher inflation and an increase in the supply of treasuries driven by the growing deficit. After reaching 3.03% on April 26, the market yield on 10-year treasuries closed the month at 2.93%.
The S&P 500® Index followed two consecutive months of losses with a slim gain of 0.22% in April. While most of the 11 sectors of the S&P 500 had modest gains or losses, the Energy sector enjoyed one of its largest monthly gains in years. Energy was up 9.36% in April, as oil prices continued to stage a strong recovery.
The price of the benchmark West Texas Intermediate crude climbed over $68 per barrel, driving up U.S. gasoline prices, as well. The average price at the pump ended the month at $2.91 per gallon, according to FactSet – a 13.7% increase from a year earlier when the average price at the pump was $2.56 per gallon.
Here are some other highlights from the past month covered in more detail later in this report:
- Retail sales move up. Retail sales reversed a down trend in March with a 0.6% increase, according to the U.S. Department of Commerce.
- Employment growth slows. Employers added just over 100,000 new jobs in March, according to the U.S. Bureau of Labor Statistics.
- Manufacturing stays strong. U.S. manufacturing levels continued to increase for nearly all industrial sectors through April, according to the Institute for Supply Management.
- International stocks follow U.S. market. The international equities markets continued to mimic the U.S. market, as the MSCI EAFE Index, which tracks performance of developed-economy stocks in Europe, Australasia and the Far East, moved up modestly in April after losses during the two previous months.
What’s ahead for the economy and the markets? See May 2018 Market Outlook: Assessing the Economy 10 Years after the Financial Crisis by Mark Simenstad, Chief Investment Strategist
U.S. Stocks still volatile
The S&P 500 finished April at 2,648.05, up just 0.22% for the month after closing March at 2,640.87. (The S&P 500 Index is a market-cap-weighted index that represents the average performance of a group of 500 large-capitalization stocks.)
The total return of the index (including dividends) was 0.38% in April. For all of 2018, the total return of the S&P 500 is a -0.38%.
The NASDAQ Index was nearly flat in April, with just a 0.03% gain. That followed a 2.67% drop in March and a 1.87% decline in February. (The NASDAQ –National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.) For the year, the NASDAQ is up 2.36%.
Retail Sales Rebound
Retail sales increased by 0.6% in March following two consecutive monthly declines, according to the advance monthly retail sales report issued April 16 by the U.S. Department of Commerce. Compared to a year earlier, retail sales were up 4.7%.
Auto sales were up 2% from the previous month, and 4.9% from a year earlier. Furniture and home furnishings stores were up 0.7% for the month and 3.9% from a year earlier. Nonstore retailers (primarily online) were up 0.8% for the month and 9.7% year-over-year.
Building materials and garden supply stores were down 0.6% for the month, but up 5.3% from the previous year.
Employment Gains Slow
U.S. employers added 103,000 new jobs in March – one of the lowest monthly totals in several years – according to the U.S. Bureau of Labor Statistics Employment Situation Report issued April 6. It was the 90th consecutive month of job growth
The unemployment rate remained at 4.1% for the sixth consecutive month, which is the lowest unemployment level since December 2000.
The average hourly earnings for all employees on private nonfarm payrolls rose by $0.08 to $26.82. Over the year, average hourly earnings have increased by $0.71, or 2.7%.
Manufacturing Expansion Continues
Economic activity in the manufacturing sector expanded in April, and the overall economy grew for the 108th consecutive month, according to the Institute for Supply Management (ISM) Report on Business, issued May 1.
Of the 18 manufacturing industries tracked by ISM, 17 reported growth in April, led by wood products, electrical equipment, appliances and components, fabricated metal products, transportation equipment; furniture and related products, paper products, and machinery.
S&P Sectors a Mixed Bag in April
Leading S&P 500 sectors for the month included Energy, up 9.36%, Consumer Discretionary, up 2.36%, and Utilities, up 2.10%. Biggest losers included Consumer Staples, down 4.32%, and
Industrials, down 2.79%.
The chart below shows the results for all 11 sectors:
Treasury Yields Jump
The market yield on 10-year U.S. Treasuries moved up to 2.93% at the close of April from 2.74% at the close of March. The yield is up more than 0.5% for the year after closing 2017 at 2.41%.
Oil Market Stays Strong
After a 5.35% increase in March in the price per barrel of the benchmark West Texas Intermediate crude, oil prices continued to move up in April. The price moved up from $64.94 at the close of March to $68.57 at the end of April – a 5.59% increase.
International Equities Follow U.S. Trend
The MSCI EAFE Index, which tracks performance of developed-economy stocks in Europe, Australasia and the Far East, moved up 1.89% in April after losses the previous two months.
What’s ahead for the economy and the markets? See May 2018 Market Outlook: Assessing the Economy 10 Years after the Financial Crisis
Media contact: Samantha Mehrotra, 612-844-4197; firstname.lastname@example.org
All information and representations herein are as of 05/01/2018, unless otherwise noted.
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