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Bond Yields Rise Amidst Stock Market Volatility

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.
In a Nutshell

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


 

Drilling Down

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%.

S&P 500 Index

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:

S&P 500 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%.

U.S. Treasury 10-Year Bond Yields

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.

Oil Price - West Texas Intermediate

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.

MSCI EAFE Index

 

What’s ahead for the economy and the markets? See May 2018 Market Outlook: Assessing the Economy 10 Years after the Financial Crisis

To see our Market Recaps every month and learn more about our perspective on the markets, subscribe to our Investing Insights newsletter.

 

Media contact: Samantha Mehrotra, 612-844-4197; samantha.mehrotra@thrivent.com

 

 

All information and representations herein are as of May 1, 2018, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management associates. Actual investment decisions made by Thrivent Asset Management will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.  Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Indexes are unmanaged and do not reflect the fees and expenses associated with active management. Investments cannot be made directly into an index.

Past performance is not necessarily indicative of future results.

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