Chutes and Ladders


  • Equity markets continued to perform positively through April with the S&P 500 returning 4.05% and the Russell 2000 returning 3.41%. Year-to-date, large caps have outperformed small caps with lower volatility.
  • International equities, while still negative year-to-date, have turned in positive performance in April with the MSCI EAFE up 2.81% and the MSCI EM up 2.11%.
  • The U.S. yield curve remains inverted in the front-end of the curve with the curve steepening past the 2-year. Short-duration fixed income and credit were positive in the month while longer duration treasuries underperformed. Short duration treasuries were up 0.20% and intermediate and long-term treasuries were down -0.42% and -1.77%, as represented by the respective Bloomberg Barclays indexes.
  • Credit spreads tightened during the month with investment grade and high yield CDS spreads tightening. Investment grade credit was up 0.61% while high yield credit was up 1.29%.
  • While broad (spot) commodities were slightly negative for the month at -0.67% due to depressed levels for metals, livestock, and agricultural commodities, oil continues to perform positively as global inventory has been depressed and sanctions are in place on oil producing countries Venezuela and Iran. WTI Crude was up 5.47% in April.
  • The dollar performed positively versus a broad basket of currencies, gaining on the EUR, GPB, and JPY cross.
  • Of the eight main hedge fund strategies tracked, Global Macro returned the strongest return of 1.15%. Event-Driven and Merger Arbitrage strategies also performed positively at 0.47% and 0.08%. The Anadarko/Chevron announced deal kicked off one of the largest bidding wars within the energy sector over the last 4 years. Equity Market-Neutral strategies underperformed at -0.50%.
  • Economic Data

  • The U.S. posted better than expected 1Q GDP figures reporting 3.2% versus the survey estimate of 2.3%. Personal consumption also surprised on the upside at 1.2% while the trade balance improved.
  • Core inflation was up 0.1% month-over-month while headline inflation was up 0.4% month-over-month given high oil prices.
  • The unemployment rate has stayed static at 3.8% and Non-farm Payrolls increased by 196,000.
  • Housing starts dipped down by -0.3% to 1,139K from 1,162K. Similarly, existing home sales also dropped, falling by -4.9% to 5.21M from 5.51M. New home sales, however, was positive by 4.5% rising to 692K from 667K.
  • Consumer confidence improved to 129.2 from 124.1.
  • Central Bank

  • With relatively flat inflation, the Fed met at the end of the month and held the Fed Funds Rate at the current level. The Fed continues to telegraph a patient path regarding its rate increase schedule and balance sheet run-off.
  • In Europe, the European Central Bank maintains its stance on loose monetary policy as Eurozone inflation looks to grab a foothold.
  • The Bank of Japan reiterates its intention to continue its current rate of monetary stimulus.
  • Chutes and Ladders…

    The S&P 500 reached its all-time closing high of 2,945.83 on April 30, 2019. The view from the top can be nice, it’s also a long way down. With measures of asset class performance favorable, a better than expected Q1 GDP growth figure reported, strong employment figures, and improved consumer confidence, optimism seems to be pricing into the market.Related: Factor Investing Goes InternationalIn the backdrop of all this, the Fed is still dealing with soft inflation. The Fed meeting at the end of the month left rates unchanged as trade discussions remain ongoing, and we may be near the end of the road for the tariff “can” if a final agreement can’t be reached. By the end of April, conversations between administration officials and China still did not reach an agreement with the impasse resulting in how much of the $250B in tariffs would be removed.Tariffs on Chinese imports may result in inflation, but for the wrong reasons. As the Fed continues to monitor the core drivers of employment and consumer expenditures, it seems the probability of rate hikes has given way to possible rate cuts.Although potential event risk (good or bad) could only be a tweet away, the relatively low VIX has provided a feeling of relative calm; however, alternative measures of risk provide a divergent view with the CBOE SKEW Index rising 4.56% in April and the CBOE Put/Call Ratio Index also increasing by 20.72%.As we enter the election cycle the idea of a “Trump put” has entered the conversation given the President’s use of the market as validation of his policies. We also have the “Powell put” in play with the Central Bank in a position to inject monetary stimulus or the “Xi put” in case Chinese growth falls below 6% due to the fall-out from the Trade talks. As the market moves/category/learn/building-smarter-portfolios past its 4th consecutive positive month after reaching the apex of the S&P 500 on April 30, contrarians may see this as a chance to manage risk while bulls are looking onward and upward.