The Markets
The markets continued their slow and steady rise in April as most of the major averages posted advances for the month. On the heels of a solid March, the Dow Jones Industrial Average charged ahead setting nine new recovery highs for the month. Despite a retreat in the waning days of April, the Dow managed to post a 152 point gain (+1.4%), settling at 11,007.
The NASDAQ once again outpaced the Dow as the tech stocks continued to lead the charge. However, like the Dow, the last week of the month saw the index experience a string of daily declines. For the month of April, the NASDAQ gained 63 points (+2.6%) to close at 2461.
The standout winner for the month was real estate, advancing a solid 6.39%. This part of the economy has been particularly strong during the year-long market and economic recovery. So too have the emerging international markets, although momentum in this area has been waning over the last few months.
Fixed income continues to be steady with no meaningful changes in long-term interest rates.
The Appleton Group Composites™
April was another month of consistent gains for all of our firm’s managed portfolios. The economic recovery has been lending support to practically every market segment, and our clients have been participating nicely. Our more assertive allocations have remained intact for the month as there currently exist supportive, rising price trends for every security we currently own. There has certainly existed a larger appetite for at-risk assets such as equities, real estate and commodities on the part of institutional investors, with increasing evidence of a continued shift away from cash and fixed income investments. This is a normal characteristic of a robust economic and market recovery.
Many of you who know me recognize that over the years I have been both a frequent skeptic and critic of this economic system that is so focused on incessant and unending growth and consumption. For many years, I stood firm to the belief that continued market advances would be difficult in the face of diminishing need for growth. With this belief squarely in mind, our discipline’s focus on risk management first and portfolio gains second has been prudent. This tenet of investing is absolute to us – it is the bedrock of a solid investment plan. However, with age comes the wisdom in recognizing that there is a time for everything. Most notably, there is a time for risk management and a time for the acceptance of normal market risk. The current economic recovery has been like so many throughout the history of capitalism in that our collective aversion from risk gradually succumbs to the desire not to be left behind. At some point, the market recovery will wane and the tide will shift back toward capital preservation and “gain harvesting.” But right now the economic recovery is gaining momentum, it is unfolding normally as are the markets, and it will be important to work toward capturing as much advance as is prudently possible. When risks become abnormal (as they certainly have from time to time over the past decade), it will then be a time for action and for disciplined portfolio adjustments to be made.
Looking Forward
The current corporate earnings season has been every bit as good as expected. Many companies are reporting robust earnings, and many are cautiously guiding future estimates higher still. This is important to fuel further market advances, as much of the expected economic recovery is already priced in.
The biggest wildcard by far lies in the “evenness” of the recovery. Some market segments are recovering in solid fashion (Technology companies, financials, commodity-based companies, etc.), but others are still struggling (utilities, airlines, etc.). So too are entire economic zones, most notably in Europe. Greece, Portugal, Spain, and Ireland are standouts when it comes to high levels of debt and shortfalls in tax revenue to support that debt. While Greece has gotten the lion’s share of the attention thus far, if another EU country needs assistance it will present a great challenge to both the debt and equity markets alike. The U.S. Dollar has strengthened in response to weakness in Europe, a condition which is most unwelcome. A continued weak dollar is necessary to fuel a global economic recovery, and all eyes must be focused on any sustained strength in the dollar as a trigger for necessary portfolio adjustments.
