What’s Up?

ALMOST EVERYTHING on Wall Street went up in April, including some of 2021’s laggards, such as gold, bonds and growth stocks.

Investors may not like President Biden’s capital gains and corporate tax hike proposals. But despite the president’s somewhat stealthy pursuit of policies worthy of Franklin D. Roosevelt, stock investors could be forgiven for breaking out into FDR’s 1932 campaign song, Happy Days Are Here Again. Consider:

• Stocks have risen more in Biden’s first 100 days (symbol: SPY +9.8%) than in the same period of any president’s term since—guess who—FDR’s fourth.
• In April, the S&P 500 index posted its biggest monthly gain (SPY +5.3%) since November and reached a record high on April 29.
• Companies from Caterpillar to McDonald’s to Amazon posted blowout first-quarter earnings. Corporate profits beat analyst estimates at the best rate since Refinitiv (formerly Thomson Reuters) began tracking such data in 1994. Amazon’s profits tripled to a record $8.1 billion.
• The Dow Jones Transportation Average—tracking such industries as airlines, trucking and railroads—ended the month with its 13th consecutive week of gains, the longest streak since it posted 15 straight weeks of gains in 1899. The average is up 23% year to date.
• The latest data show a surge in personal income (+21.1% in March vs. February) and a spike in the personal savings rate (27.6% in March).
• Personal consumption rose 4.2% in March and is back above its pre-pandemic level.

If you’re looking for reasons to worry, aside from rampant speculation in some markets, a big one is that both inflation and inflation expectations are also up. The 10-year breakeven rate—the difference between the nominal yield on Treasury bonds and the real yield on inflation-indexed Treasury bonds—spiked to 2.41% at month’s end, its highest level since 2013, suggesting investors see inflation at that rate in the decade ahead. Prices are surging for copper, corn, soybeans and even used cars. (A shortage of computer chips is causing automakers to slow production and even temporarily close some factories.)

Even the losers won. In April, Treasurys (symbol: GOVT +0.7%), the overall bond market (AGG +0.7%), gold (GLD +3.6%), gold-mining shares (GDX +5.7%) and emerging markets bonds (EMB +2.4%) all gained, though they remain down year to date.

Rotation. REITs (VNQ +7.9%) and large-cap growth stocks (VUG +6.9%) were the strongest performers among U.S. market segments during the past month. REITs have been strong all year, but VUG had eked out minimal first-quarter gains. By contrast, the microcaps that have led the market year to date, with a 24% advance, fell slightly in April (IWC -0.03%). Small-cap value stocks (VBR +4.0%) are now up 21.6% year to date.

Emerging dichotomy. Last month, emerging market returns were lackluster (IEMG +1.7%), weighed down by the index’s largest component, China (MCHI +0.3%), and by COVID-ravaged India (INDA -2.8%). By contrast, gains were strong in Taiwan (EWT +7.6%) and Brazil (EWZ +6.3%), and solid in Mexico (EWW +3.7%). Taiwan’s market is now leading all major countries year to date (+21.6%), while Brazil remains underwater (-4.1%).

William Ehart is a journalist in the Washington, D.C., area. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart and check out his earlier articles.

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