Domestic equity markets advanced in April in response to another Federal Reserve interest rate cut and first indications of a bottoming in several business condition metrics. Growth stocks significantly out-performed value stocks in April. Inventories, however, shrank in absolute terms and compromised growth by approximately two and one half percentage points. Excess stocks are being rapidly absorbed. Unemployment claims were at levels not seen since the last recession and are a factor to monitor, but housing activity demonstrated record vigor.
Inflation remains relatively subdued.
We expect the Federal Reserve to reduce rates further at the May 15th FOMC meeting. Longer maturity Treasury yields have risen year to date, in contrast with the short end of the yield curve. Taxable fixed income portfolios possess durations slightly longer than relevant benchmarks and are positioned expecting additional yield curve steepening. Small cap growth stocks, in particular, are attractive versus bonds, value stocks and earnings growth potential. Despite near-term earnings pressures, technology companies offer excellent potential.