With April behind us, it is time to have a look at what asset classes performed best and the changes on the YoY (year on year) ranking. Not surprisingly, large and small caps in the United States made it to the top three last month.
US MLPs (Master Limited Partnerships) have led the pack. While underperforming on a yearly basis, they benefited from the Fed’s actions in March and April.
The industry known for offering high yields to its investors recovered some of the twelve months losses.
The surprising performer is the US stock market. After diving into bearish territory in March, triggering calls to shut down the market, it surged dramatically – just as quick as it fell, leading to rallies not seen in decades.
One of the Best Month in Decades
Investors in the stock markets focus on valuation. They check each company’s performance, analyze financial reports, and use various valuation metrics (e.g., price-earnings ratio, cash ratio, discounted cash flow, etc.) to find undervalued companies to invest in.
They usually wait for a market pullback to offer them the opportunity to buy at a lower price. But when the pullback comes as fast as it did this March, most investors step back – fear prevents them from buying the dip they were previously waiting for.
Not this time around. In fact, the dip was bought so aggressively that the S&P 500 had one of the best months in decades. April 2020’s 12.8% performance was exceeded only two times in the past – October 1974 and January 1987.
Why Did Stocks Outperform?
To many, the surge in the stock market makes no sense. After all, over thirty million people in the United States applied for unemployment benefits in the last six weeks alone. Suddenly, from almost full employment, the unemployment rate will most likely reach the double-digit territory.
With the economy in lockdown mode due to the spread of the coronavirus, most of the US companies, large and small alike, postponed the 2020 outlook. They simply sit and wait – like everybody else, with one exception. The Fed.
The stock market is a leading economic indicator, and the Fed knows that very well. It creates wealth and spurs consumer confidence and spending – much needed in times of crisis.
So, the Fed did what it was supposed to do. It flooded the financial system with dollars and made sure funds are available to anyone.
The trick worked, as stocks surged the most in 33 years.