Equity Overview 

Notwithstanding the decline in semiconductor stocks, the tech-heavy NASDAQ reached new highs in April, crossing the 6,000 threshold for the first time. Other major indices remained below their March peaks.

Consistent with the recent trend, growth stocks outpaced value stocks, and earnings surprises continued to drive superior stock performance. Most sectors in the S&P 500 recorded gains, except for energy stocks which fell with the price of oil.

First quarter earnings reported in April provided reason for optimism. With 58% of S&P 500 companies reporting, the blended growth rate for Q1 earnings was 12.5%, well above the 9% rate projected at the beginning of the quarter and the best result in five years. In addition, 77% of companies reporting beat consensus earnings expectations, compared with the 70% one-year average. And perhaps most encouraging, 68% of companies reporting beat consensus revenue estimates, compared with the 53% one-year average. In recent years, earnings beats have often been driven by cost-cutting and automation rather than by increased sales, so the significant revenue gains in the first quarter are particularly noteworthy.

Macro Overview 

Economic data reported in April were mixed.  On the positive side, unemployment remained at historically low levels, manufacturing expanded, and consumer confidence remained high.  However, the Commerce Department reported that its initial estimate of annualized first quarter growth was only 0.7%, anemic by any standard.  The disappointing result reflected an increase of only 0.3% in consumer spending, which comprises about 2/3 of economic activity in the U.S.  This was the slowest increase in consumer spending in 7 years, but economists generally treated it as an anomaly.  They attributed it to a mild winter (diminishing spending on heat and utilities) and delays in tax refunds resulting from government efforts to combat fraud.

The domestic economic agenda continued in gridlock mode, with no meaningful progress on tax reform or infrastructure investment.  The administration did release a single page of bullet points on tax reform, but it contained no cost estimates and was widely derided as insubstantial.  Similarly, no details emerged about the president’s campaign promises for a $1-trillion infrastructure plan.

International news focused on the U.S. airstrikes in Syria and deepening tensions with North Korea, but neither of these had meaningful impact on the markets.  More constructively, prospects for the health of the European Union advanced significantly with the victory of Emmanuel Macron in the first round of the French presidential election.  Macron is an ardent internationalist, as compared with the ultra nationalist Marine Le Pen, his right-wing opponent.