Domestic stocks were mixed for the month with weaker-than-expected real GDP growth weighing, in particular, on smaller-capitalization stocks. Real GDP increased at a 0.2 percent annual rate in the first quarter, following gains of 2.2 percent in the fourth quarter and 5.0 percent in the third. Despite the anemic reading, Fed officials noted that household income and confidence were rising and therefore anticipates growth to return to a modest pace in subsequent quarters. Signs of increasing labor costs hinted at a tighter job market. Private-industry wages rose 2.8 percent in the first three month of the year, registering their strongest year-over-year growth since the third quarter of 2008. Nevertheless, inflation appears well contained. Personal Consumption Expenditures, the Fed’s preferred inflation gauge, rose just 0.3 percent in March from a year earlier, unchanged from the prior month, and well below the central bank’s 2 percent target. Strong international equity markets persisted in April while the dollar, oil and bonds reversed recent trends. International equities continued to respond favorably to the European Central Bank pumping billions of euros into its economy through bond purchases. The euro strengthened 4.5 percent against the dollar and U.S. benchmark crude oil surged 25 percent in April after both tumbled 11 percent in the first quarter.
U.S. stocks ended the month with a whimper as mixed economic data fueled a selloff that wiped out the bulk of April gains. Weaker-than-expected consumer spending, poor first quarter GDP growth, and deflation concerns more than offset a positive jobless claims report. Smallcapitalization and technology shares, depicted by the Russell 2000 and NASDAQ indices, respectively, were predominately affected. On the international front, stocks continued their positive 2015 trend, after years of trailing their domestic counterparts. Both the developed-market EAFE and emerging markets indices are up approximately 10 percent for the year and have been aided by the U.S. Fed’s inaction and by immense monetary-stimulus programs from central banks in Europe and Japan.
Longer-dated bonds finished the month in the red as profit taking and a weakening dollar resulted in rising yields. The 10-year Treasury bond finished the month yielding slightly over 2 percent. High-yield corporate bond prices continued to move higher as spreads on risker debt contracted on news that the Fed expects growth to return to moderate levels from a weak first quarter reading. In late April, the Fed reiterated that it will raise its short-term target rate when the labor market has improved and when officials are “reasonably confident” that inflation will move back toward the 2 percent annual goal. Despite labor market improvement, low inflation readings have prognosticators doubting the Fed will raise its target rate anytime in 2015.