Market Attributes: U.S. Equities April 2019

Market Attributes

U.S. Equities April 2019

KEY HIGHLIGHTS

The S&P 500? was up 3.93% in April, bringing its YTD return to 17.51%. The Dow Jones Industrial Average? gained 2.56% for the month and rose 14.00% YTD. The S&P MidCap 400? increased 3.93% for the month and was up 18.50% YTD. The S&P SmallCap 600? returned 3.81% in April and 15.40% YTD.

Exhibit 1: Index Returns

INDEX

1-MONTH (%)

3-MONTH (%)

YTD (%)

1-YEAR (%)

S&P 500

3.93

8.94

17.51

11.25

Dow Jones Industrial Average

2.56

6.37

14.00

10.06

S&P MidCap 400

3.93

7.37

18.50

5.25

S&P SmallCap 600

3.81

4.38

15.40

3.90

Source: S&P Dow Jones Indices LLC. Data as of April 30, 2019. Past performance is no guarantee of future results. Table is provided for illustrative purposes. Returns show n are price returns.

MARKET SNAPSHOT

It took 215 days--the longest wait since the July 2016 417-day wait (guess I shouldn't mention the 1,997-day wait from October 2007 to March 2013, much less the 9,146-day drought between 1929 and 1954)--but the S&P 500 returned to setting new closing and intraday highs this month (four of them, with three in row on the last three days of the month). The S&P 500 closed on Tuesday, April 23, 2019, at 2,933.68, above its Sept. 20, 2018, high of 2,930.75, then a few days later on Friday (April 26, 2019), it beat that, closing the week at 2,939.88, then on the following Monday (April 29, 2019) setting a new intraday high of 2,949.52 (replacing the old one of 2,940.91 set on Sept. 21, 2018), as it closed at a new closing high of 2,943.03, and on April 30, 2019, in a give-and-take market, posted its fourth new closing high (but not a new intraday high), finishing the month at a closing high of 2,945.83 (the last month-end closing high was on Nov. 30, 2017, at 2,647.60). The highs marked the 90th through 93rd new closing highs since the U.S. November 2016 election, and officially confirmed that the current bull market is the longest on record (started March 9, 2009; up 335% and up 438% with dividends). The YTD gain was 17.51% (18.25% with dividends), its best opening since the fun-filled year of 1987 (19.07%; 1987 ended the year up 2.07% after an October 19 decline of 20.47%--the worst day in index history). The new high made up for the 20% fall from the September 2018 high to the December 2018

Contributor:

Howard Silverblatt, Index Investment Strategy, Senior Industry Analyst, howard.silverblatt@ S&P Dow Jones Indices' Market Attrib utes? series provides market commentary highlighting developments across various asset classes.

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U.S. Equities

April 2019

low (actually -19.78%, just shy of the official 20% Bear classification; on an unofficial intraday basis, it did reach -20%). The S&P 500 was up 25.30% from its recent low set on Dec. 24, 2018 (2,351.10), and up 17.71% YTD, as the (old) bull rode on.

With respect to the new high, the index did what it does, measuring the overall market change since the prior September high (declining 14% in Q4 2018 and up 17% YTD) as being flat (up 0.51%). The dispersion, however, showed it was a stock picker's market, as 252 of the 505 issues were up (average 12.28%), with 135 of them up at least 10% and 44 up at least 20%, as 252 (same as were up) issues were down (average -13.10%), with 136 of them down at least 10% and 56 down at least 20%. The bottom line was that overall, the S&P 500 was flat (up 0.51% from Sept. 20, 2018), as over half of the issues (53.7%) were up or down at least 10% from that time period, and 19.8% were up or down at least 20%--a stock picker's dream (or nightmare). One of the reasons for the recovery in 2019 is that earnings did it again, supporting the market to a new closing high by beating reduced estimates. Similar to Q4 2018, the "beat is a beat" market view supported the multiples. While that is nice for today, it will be continue to be tested, as the current 12-month operating P/E is a bit higher than the historical rate (19.3 currently, 18.8 historically), with forward growth for 2019 at 17.8, also a bit high historically (it's typically in the low 17 range).

As for the month of May, retail earnings should give some insight of how much and where consumers are spending. Politics will continue, as May 6, 2019, is the U.S. House of Representatives ' subpoena deadline for Trump's tax returns, as a court case is already in motion. To date, the market impact of the political drama has been limited to Health Care issues, as public calls for legislation on drug pricing and "Medicare for All" have been vocal. May 18, 2019, is the deadline for Trump to decide if he wants to impose tariffs on auto imports. Adding to the headlines (and trades) is an expected trade deal announcement between the U.S. and China.

Historically, April posts gains 63.7% of the time, with an average gain of 4.19% for the up months and a 3.82% average decrease for the down months, with an overall average of 1.28%. May posts gains 58.2% of the time, with an average gain of 3.15% for the up months and a 4.63% average decrease for the down months, with an overall average decline of -0.10%.

The S&P 500 traded and closed above its Sept. 20, 2018, high (2,930.75), setting four new closing highs (the last being 2,945.83 on the last day of the month) and a new intraday high (2,949.52), making up for the 20% fall (intraday; officially it was 19.78%, a tick less than the official bear market classification of losing 20% on a closing basis). The dispersion within the S&P 500 was significant, with 135 issues up at least 10% and 44 up at least 20%, as 136 of them were down at least 10% and 56 down at least 20%.

The S&P 500 closed at 2,945.83, a closing record, up 3.93% (4.05% with dividends) from last month's 2,834.40 close, when it was up 1.79% (1.94%). Year-to-date, the S&P 500 was up 17.51 (18.25% with dividends). For the one-year period, the index returned to the double-digit category, up 11.25% (13.49% with dividends). The Dow? closed at 26,592.91, up 2.56% (2.66% with dividends) from last month's 25,928.68, when it was up 2.41% (2.59%). Year-to-date, The Dow was up 14.00% (14.79%), and the one-year return was 10.06% (12.63%).

Q1 2019 estimates appeared to have declined enough (down 7.1% from year-end 2018) to produce a 73.0% beat rate (historically it is 67%), as 211 of the 289 reported issues (71.1% of the market value) have beaten earnings estimates; sales were at a 57.0% beat rate, with 162 of 284 issues beating. The

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U.S. Equities

April 2019

Q1 2019 estimate calls for a 6.1% gain over Q4 2018 and a 1.8% gain over Q1 2018. For 2019, estimates have declined 3.9% since the start of the year, with the first half down more, as 2020 is down a tick (statistically negligible, -0.3%), and 2019 is estimated to increase 8.9% over 2018; 2020 estimates show an expected 12.5% gain over 2019 (22.5% over the two years from 2018). The S&P 500 target price was 3,172 (7.7% from here; 3,108 last month), and The Dow target price was 28,610 (7.6% from here; 28,512 last month).

Controversy over Special Counsel Mueller's report continued, as Congress demanded the full report, threatening to subpoena it (which would set up a court battle), but gave the Justice Department time to review and reconsider. Trump said he would nominate former Republican presidential candidate Herman Cain to the Federal Reserve Board, who has been outspoken against recent interest rate increases. Cain withdrew his name later in the month as opposition to him grew. Trump sought to impose USD 11.2 billion in new tariffs on the EU, citing retaliation for EU subsidies to Airbus (which has been in litigation for 14 years at the WTO).

The U.S. House of Representatives (led by Democrats) voted to reinstate the 2015 Net Neutrality regulations (prohibiting companies from providing differing internet speeds based on customers or fees), as the U.S. Senate (led by Republicans) said the bill was "dead on arrival" to its chamber. The U.S. and China set a new date for trade talks; as U.S. representatives had traveled to China, Chinese representatives would travel to the U.S. (tentatively May 6, 2019), with a goal of "signing" in late May or June (2019).

Public political discussion continued to grow, but with a limited market impact (mostly on Health Care issues with respect to drug prices and "Medicare For All"), as a civil war in the Democratic party emerged via a debate over a potential Trump impeachment proceeding drew commentary. Related (but not directly), the House Oversight Committee (controlled by Democrats) issued a subpoena (due May 6, 2019) for eight years of Trump's tax returns; Trump counter-filed to block the subpoena. Meanwhile, the Trump administration said it would tighten the ban on Iranian oil sales, via not extending eight temporary country waivers (which were for 180 days and expire May 18, 2019). Trump and the Democrats agreed to work toward a USD 2 trillion U.S. infrastructure package, but did not discuss how to fund it (spending is easy, getting the money is hard).

Former Vice President Biden became the 20th declared candidate for the Democratic nomination to run for president in 2020. Biden starts as the highest-polling Democratic candidate in his party, with the nomination in July 2020 (the Republican nomination is in August 2020); the election is on Nov. 3, 2020.

The IMF downgraded its 2019 global growth expectation to 3.3% from its 3.5% January expectation (and down from 3.7% in October 2018), down from 3.6% for 2018. The IMF expects the U.S. to grow at 2.3% (down from 2.9% in 2018), the 19-country EU at 1.3% (1.8%), and China at 6.3% (6.6%). The ECB met and maintained its current policy. It said it could delay interest rate increases, implying no rate change for 2019 and voicing concern over negative interest rates. The Bank of Japan met and left rates unchanged (at -0.1%), as expected, and its guidance appeared to show rates unchanged over the next one-year period. The FOMC minutes from its March 20, 2019, meeting showed that a majority expected interest rates to remain unchanged for 2019. The Beige Book reported that the Fed expects a "slight-to-moderate" growth rate for the U.S. economy.

The tailwind from buybacks affecting issue-level earnings (and therefore the price) jumped in Q1 2019, as the cumulative impact of the record buybacks resulted in 72.7% of the issues reported showing a

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U.S. Equities

April 2019

decrease in shares used for EPS year-over-year, with 28.3% of the issues having at least a 4% yearover-year tailwind due to lower shares.

Drug and health store Walgreens Boots Alliance (WBA) cut its guidance, citing lower profits on prescription drugs. Money manager BlackRock (BLK) announced a large-scale reorganization, as it addresses forward growth expectations. Aircraft issue Boeing (BA) reported Q1 2019 aircraft orders declined to 95 from 180 in Q1 2019, as there were no new orders for the 737 MAX (which is globally grounded), and it slowed that plane's production by 20%. The company said it would take (an initial) USD 1 billion charge for the grounding of its 737 Max, as it halted buybacks. Separately, an investor class-action lawsuit was filed against the company for its handling of the 737 Max plane's disclosure. Entertainment issue Walt Disney (DIS) released details of its new streaming service, which is expected to challenge Netflix (NFLX). Apple (AAPL) and communication equipment maker Qualcomm (QCOM; up 51.0% for the month) dismissed all litigation against each other (as their trial began) and agreed to a new six-year (with two one-year extenders) licensing agreement. Electronics issue Samsung (SSNLF) delayed the launch of its Galaxy Fold smartphone (priced at USD 2,000) due to issues with its functionality. S&P Dow Jones Indices added Dow (DOW) to the S&P 500, an issue that was spun off from DowDuPont (DWDP), as Brighthouse (BHF) was removed from the index. S&P DJI also added Dow to the Dow Jones Industrial Average, replacing DowDuPont.

The IEA attributed oil's year-to-date increase to USD 64 from USD 45.81 at year-end 2018 (USD 60.09 at year-end 2017) to supply concerns (OPEC production cuts, Iranian sanctions, fighting in Libya), adding that there were also potential demand issues developing due to global slowdown, which could counter some the pressure.

A fire at the Notre Dame Cathedral in Paris destroyed most of the roof, as donations poured in. Typically, this is not an economic issue, but with initial donations in excess of USD 1 billion, and the government outlining an initial rebuilding plan, expenditures could affect supply and labor markets.

Bitcoin's price returned to USD 5,000 (last seen in October 2018), reaching USD 5,633, as it closed at USD 5,344, up from last month's USD 4,113 and year-end 2018's USD 3,747, but down from year-end 2017's USD 13,850.

The U.S. Social Security administration said its current review shows that the program's costs would exceed its income in 2020, requiring it to dip into its funds.

The 10-year U.S. Treasury Bond closed the month at 2.50%, up from last month's 2.41% (2.69% for year-end 2018, 2.41% for 2017, and 2.45% for 2016). The pound closed down at 1.3038 from 1.3081 (1.2754 for year-end 2018, 1.3498 for 2017, and 1.2345 for 2016), the euro was down to 1.1216 from last month's 1.1220 (1.1461, 1.2000, 1.0520), the yen closed at 111.41 from last month's 110.82 (109.58, 112.68, 117.00), and the yuan closed at 6.7348 from last month's 6.7121 (6.8785, 6.5030, 6.9448). Oil increased to close at USD 63.38 from last month's USD 60.20 (USD 45.81 at year-end 2018, USD 60.09 for 2017, and USD 53.89 for 2016). U.S. gasoline pump prices (EIA, all grades) increased, closing the month at USD 2.972 from last month's USD 2.701 per gallon (USD 2.358, USD 2.589, USD 2.364). Gold was down, closing at USD 1,282.70 from last month's USD 1,296.90 (USD 1,284.70, USD 1305.00 for year-end 2017, and USD 1,152.00 for year-end 2016). VIX closed at 13.12, trading as high as 14.39 and as low as 11.03, down from 13.71 last month (25.42 at year-end 2018, 11.05 at year-end 2017, and 14.04 at year-end 2016).

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U.S. Equities

April 2019

INDEX REVIEW

S&P 500

The S&P 500 closed at 2,945.83, a closing record, up 3.93% (4.05% with dividends) from last month's 2,834.40 close, when it was up 1.79% (1.94%). Year-to-date, the S&P 500 is up 17.51% (18.25% with dividends). For the one-year period, the index returned to the double-digit category, up 11.25% (13.49% with dividends). Intraday volatility (daily high/low) decreased to 0.56% (lowest since December 2017's 0.53%) from last month's 0.93%, as the YTD return was 0.86% (0.97% last month); 2018 was 1.21%, 2017 was 0.51% (which was the low since 1962, with the average at 1.43%). S&P 500 trading decreased 12% (same trading days as March) over last month, after the prior month's 1% increase (adjusted for trading days); year-over-year, April was down 1%, as the YTD trading volume was flat over the similar period for last year. Moves of 1% decreased; only 1 of the 21 days moved at least 1% (up), compared with 3 of the 21 days in March (2 up and 1 down). Year-to-date, there were 12 out of 82 (9 up and 3 down).

Sector variance increased, as 8 of the 11 sectors gained, down from 9 gainers last month, and February and January when all 11 were up (all 11 were down in December). The spread between the best (Financials, 8.84%) and worst (Health Care, -2.74%) sectors for the month was 11.58%, up from last month's 7.50% and 5.87 the month before that; YTD, it was 23.75% (up from last month's 13.25%; full-year 2018 was 25.19%). For the month, Financials did the best, adding 8.84%, as banks beat on earnings and gave (mostly) positive guidance; the sector was up 17.44% YTD. Information Technology added 6.36%, remaining the best sector YTD, up 26.96% (and up 72.18% from the U.S. November 2016 election). Communication Services did well, adding 6.22% (although it came under pressure the last day of the month, declining 2.56%), after last month's 2.39% gain (0.82% the month before that); the YTD was 20.69%. Earnings pushed up the sector's issues, as entertainment issue Walt Disney (DIS) was up 23.4% (up 24.9% YTD) and social media issue Twitter (TWTR) was up 21.4% (up 38.9% YTD). Consumer stocks continued to go their separate ways, as Consumer Discretionary was up 5.65% for the month and up 21.83% YTD, while Consumer Staples was up 2.33% for April and up 13.75% YTD. Health Care stocks did the worst, off 2.74%, as concern over potential Washington legislation (drug prices, Medicare for All), pushed the stocks down; YTD, the sector closed up 3.21%, though it was in red earlier in the month. Energy posted a slight decrease, down 0.01%, and was up 15.40% YTD, as Real Estate was the third decliner, down 0.58% for the month and up 15.97% YTD.

Breadth increased for the month (it was already strong), as 359 issues gained (an average 6.66% each), up from 305 last month and down from 382 the month before that; 67 issues gained at least 10% (15.00%), compared with 20 last month (123 the month before that), with 2 issues up at least 25% (none last month). On the down side, 145 issues declined (an average loss of 4.29%), down from 200 last month and up from 123 the month before that; 11 issues declined at least 10% (average -14.25%), down from last month's 22 issues (33 the month before that), and 1 was down at least 25%. Year-to-date, 458 (460 last month) issues were up (average 21.10%), with 371 (322) up at least 10% and 152 (78) up at least 25%, while 44 (43) were down, with 18 (9) down at least 10% and one (none) down at least 25%.

The Dow

The Dow got an unusual makeover this month, as DowDuPont split into three issues (spin-offs), with distributed materials company Dow (DOW) replacing DowDuPont in the DJIA (with Dow also being

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