April 2021 in Review

Daniel Zeigler, CFP, CMFC, Portfolio Manager

Hi everyone, this is Dan Zeigler, Portfolio Manager at Midland Wealth Management. Today, I just wanted to provide a quick recap on the markets for the month of April.

The equity market regained its momentum in April, with the S&P 500 climbing 5.30% and is up nearly 12% for the year. Small-cap companies took a breather this month, but still posted a positive return of 1.79% and are up 15% for the year. Investors rotated back into Growth companies, as large-cap growth rebounded and was up 6.83% for the month.

A consumer-fueled economy pushed the 1st quarter GDP up 6.4%, which actually marks the second fastest pace for growth since the 2nd quarter of 2003 and was exceeded only by the reopening burst of Q3 last year. We are expecting GDP growth for the year to be around 5-7%.

Consumers who account for nearly 70% of the economy, accelerated spending by 10.7% in the quarter, with expenditures largely focused on durable goods, such as appliances, but spending on services also grew by 4.6%. The $1,400 stimulus checks certainly helped fuel this quarter’s growth and will likely continue to drive next quarter’s GDP as Americans continue to spend.

Also driving the equity market higher this year has been strong corporate earnings, which continue to beat analyst expectations. So far, with 60% of the S&P 500 companies reporting, 86% of those companies have reported actual EPS above analyst estimates, which is above the 5-year average.

Equity markets continue to see a broadening out and participation from all sectors of the market, with Energy being one of the top performers this year. Valuations continue to be elevated, with the S&P 500 forward P/E ratio around 22.5x next year’s earnings, as the historical average has been around 16.5x. However, if you take out the top 10 companies from the S&P 500, the P/E ratio drops to under 20x next year’s earnings, which is more reasonable.

The markets did take a few days off this month when President Biden announced plans to nearly double the capital gains tax rate for certain individuals. Under the American Families Plan, Americans earning more than $1 million could see their capital gains tax climb to as high as 43.4%, from 20% today. The good news is almost 75% of Americans have the majority of their wealth in retirement accounts, which would not see any capital gains implications from this increase. It is still too early to make rash decisions, as nothing has been finalized and we will be closely monitoring the tax proposals.

As we head into May, we wouldn’t be surprised to see some lower volume and increased volatility in the equity market. We will be paying close attention to interest rates, inflation data, tax reform and the Federal Reserve’s interest rate policy. Thanks for joining me for this month’s recap.