US stocks lead in a strong month for markets.

Good economic news drove stocks higher in April.

What happened.

April was a remarkably good month for all major types of stocks. U.S. stocks led the way, with large caps (S&P 500) up 4.05 percent and hitting an all-time high during the month, recovering from last autumn’s sharp decline. Small caps (S&P 600) were hot on their heels, up 3.87 percent. Global stocks fared well too. Developed-market stocks were up 2.81 percent and emerging-market stocks 2.11 percent (MSCI EAFE and Emerging Markets indices). Volatility was notably absent in the U.S. stock market. The S&P 500 moved by +/- 1 percent on only one day in April. Bonds were almost unchanged over the month, with the Bloomberg Barclays Aggregate Bond Index up 0.03 percent.

Why it happened.

Three main factors may have driven the strong performance this month. First, economic news was positive, easing the recent worries of market participants. Economic growth beat expectations. Unemployment remains low and inflation subdued. Chinese manufacturing growth was strong. On a less positive note, the International Monetary Fund lowered its forecast of global economic growth. Second, central banks appear ready to support growth as needed. The Federal Reserve reiterated its intentions not to raise interest rates this year, and the European Central Bank left its policy unchanged. This means that market participants may be less anxious about interest rates rising, slowing down economic growth. Finally, we’re in the middle of earnings season (when companies report how they did in the first quarter of the year). So far, more than three-quarters of companies have beaten their estimated earnings (roughly speaking, how much they made after operating costs) and more than half their revenue estimates. It’s worth noting that estimated earnings are actually down from a year ago—and that markets respond to surprises compared to what they expect.

What this means for you.

At Financial Engines, we build portfolios that are individually tailored to your situation. The further you are from retirement, and the more risk you’re comfortable with, the higher your exposure to stocks will have been. What do we mean when we say stocks are risky? This month’s sidebar takes a look at this. And in a good month for stocks like April this means that you’ll have done better than those nearer to retirement and with lower risk tolerance. Most members will nonetheless have seen gains in their portfolios.
Remember, the more you tell us about your personal situation—when you plan to retire, how much risk you are comfortable with, other retirement assets you own—the better we can help build your portfolio. Please make sure that your account information is up to date.

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