Skittish stock markets finish April mostly up.

April was another volatile month in stock markets. By its end, stocks were mostly up slightly, and bonds were down. Domestic economic news remained positive. However, uncertainty about the direction of trade policy made the markets somewhat skittish.

What happened.

April was mostly positive for stock markets around the world. Large-cap stocks (as measured by the S&P 500 index) eked out a gain of +0.38% over the month. Small caps (S&P 600) did slightly better, returning +1.03%. Developed-market international stocks saw the best returns for the month, with the MSCI EAFE Index up +2.28%. Emerging markets (MSCI Emerging Markets Index) were the only major equity asset class to fall, finishing April down 0.44%.

The volatility we saw in the U.S. equity markets during late March carried through into early April. On eight out of the month’s 21 trading days, the S&P 500 moved by more than +/-1% —  five of those were within April’s first seven trading days.

Interest rates rose over the month. When interest rates rise, bond prices fall, leaving the Bloomberg Barclays US Aggregate Index down 0.78% for the month.

Why it happened.

Although several different market-influencing factors were at play in April, we need to be careful not to tie specific market moves to specific events. However, one theme woven throughout the month was the rises and declines in trade-relation tensions between the U.S. and other countries. Some large market moves came on days with big trade news. For instance, the S&P 500 fell by 2.24% on April 6 when trade tensions escalated; when those tensions eased on April 10, it rose by +1.65%.

April’s economic news was positive. Unemployment remains at historically low levels, and GDP (gross domestic product, which is a measure of the economy’s output) grew +2.3% over the first quarter. While that +2.3% was lower than the growth rate of the previous three quarters, it was higher than the markets had anticipated. Remember: Markets react to surprises, not to what’s expected. Earnings season, when companies report their performance for the last quarter, got underway toward the end of April. It was a positive season through the end of the month with mostly good surprises compared to what the market expected.

The 10-year Treasury rate, which is the interest rate the government must pay to borrow money for 10 years, rose from 2.73% to 2.95% in April. Possible reasons for this jump include expectations about future interest-rate hikes, what inflation and growth will be over the next few years, and how much the government is borrowing.

Developed-market international stocks saw positive returns despite the dollar’s strengthening. You see, if a French share’s price in euros is unchanged, its price in dollars will fall as the value of that dollar rises. The effects of both U.S. trade measures and the rising dollar may have hurt emerging markets, however.

What it means for you.

April wasn’t a month of dramatic market moves, and your portfolio will probably have seen only modest returns. The more stock-heavy your portfolio, the better it will have done. That generally holds true for those of you further from retirement or who have told us about your higher risk tolerance. Despite the differences in weights in different asset classes, all the portfolios we build are well diversified. In this month’s sidebar, we look at what diversification is really all about. You can have a well-diversified portfolio with only a few funds, or a poorly diversified portfolio with many funds.

Please log into your Financial Engines account or call one of our advisors to make sure your portfolio is aligned with your retirement goals. The more you tell us about yourself, the better we can tailor your portfolio to your unique circumstances.