After starting the month with declines, stocks ended April in positive territory with large caps up 0.7% and the mega-cap Dow Jones Industrial Average hitting a record high on the month’s last trading day. The end of the month also brought strikingly divergent news on the economy’s health, including, on the one hand, a startlingly low initial estimate of first quarter GDP growth (0.1%) and, on the other, the latest Federal Reserve statement, which pointed to signs of improving growth after the winter’s severe weather had depressed economic activity (and contributed to the very low GDP number). The Fed also reduced their monthly bond purchases by another $10 billion. As has been true for much of the year, smaller-company stocks (and more speculative growth sectors such as technology) tended to lag in April. The Russell 2000 small-cap index was down nearly 4%. Our portfolios are underweight small caps based on valuation, a concern that has also been echoed by some of the small-cap managers we cover. Developed international stocks in aggregate were up 1.6%, even as Japan declined further as the country’s new sales tax kicked in. In Europe, Greece returned to the bond market after four years, holding a highly successful bond sale that was met with strong investor demand. More broadly, bond yields for peripheral countries such as Italy, Spain, and Portugal hovered around record lows, further indicating that—thanks in significant part to supportive efforts by the European Central Bank—investors are far less worried about sovereign debt issues in the Eurozone. Emerging-markets stocks were slightly positive for the month. Bonds rose in April—the Vanguard Total Bond Market Index gained 0.8% for the month—and the yield on the 10-year Treasury declined to 2.65%. A flare-up in geopolitical tensions between Russia and Ukraine has been an intermittent contributor to investors’ flight toward safe-haven assets, with Treasuries and core bonds being the general beneficiaries. Moreover, minutes from March’s Federal Reserve Open Market Committee meeting (released mid-April) reassured investors that the Fed expects to keep rates low for some time. Muni bonds posted another solid month (up 1.1%), bringing year-to-date returns to 3.7% for our muni market proxy (the Vanguard Intermediate Term Tax-Exempt Fund).
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