Geopolitical rumblings mark April

Mike Loewengart, Vice President of Investment Strategy

E*TRADE Capital Management


Maybe April showers had the market stuck inside for a while. Some analysts noted the turbulence in North Korea and Syria, and the highly anticipated French election, may have contributed to the S&P 500® and Dow closing below their 50-day moving averages in mid-April for the first time since last November. But toward the end of the month investors seemed to find their umbrellas, perhaps guided by some clarity out of France.

The Chicago Board Options Exchange Volatility Index (VIX),+ which measures expected U.S. market volatility in the next 30 days, hit its highest level of the year in the run-up to the first round of France’s presidential election on Sunday, April 23, given the potential implications for the euro and the European Union (E.U.). But centrist candidate Emmanuel Macron’s first round victory seemed to calm investor nerves. Macron supports the euro, wants to strengthen the E.U., and is for free trade.

The outcome fueled something of a relief rally, not just in France, where their stock market hit a nine-year high, but across previously jittery markets around the globe as well. Unsurprisingly, a rejuvenated euro jumped to its strongest level against the dollar since the U.S. election following Macron’s strong showing.

On the data front, preliminary Q1 GDP in the U.S. came in on the slow side at 0.7%, which is not atypical for a Q1 result. Some attribute the muted number to warmer than usual temperatures in January and February weighing on electricity and gas utilities spending. Conversely, China’s real GDP surged in Q1, increasing 6.9% year over year. Market observers also noted strength in investments, improving retail sales, and industrial corporates in China.

Domestic equities

Stocks in the U.S. wavered some in April but traded in a tight range for much of the month, ending modestly higher. Given this month also witnessed a litany of large-scale announcements out of Washington, the muted activity suggests major U.S. policy changes are either priced in, or less of a factor for the market than they were immediately following the U.S. election.

How domestic equities performed in April

Source: Morningstar Direct

Technology and consumer discretionary won the month from a sector standpoint, on the heels of strong earnings reported by major companies within each industry. 
April's best and worst equity performers

Source: Morningstar Direct

Technology continued to lead the pack in year-to-date performance. Market observers note a rise in demand for semiconductors, cloud computing, and hardware throughout Q1 may have helped to push the tech-heavy Nasdaq past the 6,000 mark for the first time.
Year-to-date best and worst performers

Source: Morningstar Direct

International equities

Investors continued to seek international exposure in April, with European equities of particular interest. After years of tepid interest due to macro instability, investors appear to be finding attractive valuations in Europe. Some note that increased potential for a pro-euro president in France seemed to encourage investors as well. Emmanuel Macron’s strong showing in the election’s first round versus the so-called euroskeptics, far-right candidate Marine Le Pen and far-left candidate Jean Luc Mélenchon, seemingly helped calm market nerves that had built prior to the first round. 

How international equities performed in April

Source: Morningstar Direct

Overall, observers point to talk of U.S. protectionism as a potential catalyst for increased activity abroad, especially as it relates to trade. In individual emerging markets, Turkey, South Africa, and Malaysia had positive returns on the month. 
April emerging market performance by region

Source: Morningstar Direct

Fixed income

The story in fixed income largely remains the same from March—the yield curve continued to flatten with the Federal Reserve signaling that it is still on track with its plans for rate increases. Investors continued to show interest in municipal bonds, despite talks of deep tax cuts from Washington. Many wealthy Americans may find their tax situations would not change dramatically enough to give up the tax-exempt status of municipal bond income.

U.S. bond performance April and year to date

Source: Morningstar Direct

Investors continued to hunt for yield in the equity-sensitive high-yield sector, though attractive yields are becoming harder to find. Credit spreads continued to fall, now well below the long-term averages for both investment-grade and high-yield corporates. Long-term Treasury and high-yield bonds were among the best performing parts of the market. Shorter-term Treasuries and Treasury inflation-protected securities (TIPS) were the weakest, though still positive.
April best and worst fixed income sectors
Year-to-date best and worst fixed income sectors

Source: Morningstar Direct

The bottom line

Geopolitical rumblings and policy dealings can cause markets to pause. But market observers note that fundamentals, including solid earnings and economic growth, are typically better compasses for market health than political maneuvers.

As some of April’s headlines seem poised to remain in play as the calendar flips to May, we’ve identified three developments that investors may want to pay attention to, even amid the noise that may accompany them: 

  • Europe continues to emerge. Attractive valuations appear to have lured investors to Europe, especially relative to pricier stocks in the U.S. The possibility of catalysts emerging from a Macron presidency in France, namely a stronger euro and E.U. stability, could create additional momentum in Europe.  
  • China shows strength. Encouraging macro data out of China recently have given emerging markets in Asia a boost, and trade activity appears to be increasing. The region has soared year to date, even with the mounting tensions along the Korean Peninsula in recent weeks.
  • Lawmakers debate tax reform. Pundits note the Trump administration’s proposed tax cuts could benefit consumer discretionary, consumer staples, and industrials companies, as most of their sales come from the U.S—currently home to some of the world’s highest taxes. Also, a repatriation tax holiday (a short-term reduction or elimination of taxes) could offer multinationals an incentive to bring cash home. But many point to the administration’s attempt at health care reform in March as a stark reminder that legislation is not an easy process, and often slow to enact.  

There’s a cacophony of geopolitical noise out there, and in times like these it’s as important as ever to focus on the long term, and your own risk tolerance and goals. This perspective can help contextualize the noise and even reposition short-term volatility as areas of opportunity within the background of your long-term plan.

As always, thank you for reading.


Mike Loewengart

Vice President, Investment Strategy

E*TRADE Capital Management, LLC


Additional contributor:

Andrew Cohen, CFA

Director, Investment Strategy

E*TRADE Capital Management, LLC


Mike Loewengart is the Vice President of Investment Strategy for E*TRADE Capital Management, LLC. Mike is responsible for the asset allocation and investment vehicle selections used in E*TRADE’s advisory platforms. Prior to joining E*TRADE in 2007, Mike was the Director of Investment Management for a large multinational asset management company, where he oversaw corporate pension plan assets. Early in his career, Mike was a research analyst focusing on investment manager due diligence for the consulting divisions of several high-profile investment firms. Mike holds series 7, 24, and 66 designations, as well as the Chartered Alternative Investment Analyst (CAIA) and Certified Investment Management Analyst (CIMA) designations. He is a graduate of Middlebury College with a degree in economics.

Andrew Cohen is a Director of Investment Strategy for E*TRADE Capital Management, LLC. Prior to joining E*TRADE, Andrew was the Director of Investments and Operations for a large Registered Investment Advisor, where his responsibilities included investment manager research, asset allocation, and portfolio construction. Previously, he was a Senior Research Analyst and Team Leader for a leading wealth management platform. He is a CFA charterholder and a member of both the New York Society of Security Analysts and CFA Institute. He is a graduate of Virginia Tech with a B.S. in Finance.


+VIX® is the ticker symbol for Chicago Board Options Exchange (CBOE) Volatility Index®. The index, also called the fear index, is calculated by CBOE and generally measures expected volatility of the U.S. market in the next 30 days. The higher the number, the more bearish the market is in general. The VIX is used to calculate the put/call ratio.