Trading was relatively light in April compared to previous months as investors became quite pessimistic about the future of the potential recovery. Economic reports were mixed throughout the month, mostly giving an indication that the recovery would be slower than investors had planned. Nevertheless, the reports were in line with predictions by Wall Street economists and the Fed. With no FOMC meeting in the month, investors were left to ponder the words of Fed Chairman Alan Greenspan and other Fed governors. April began with some leftover positive momentum from the end of March, but that quickly faded once the quarterly corporate profit season began. While past months saw worries that the Fed would raise interest rates too soon and cut off a rebound, it was disappointment over inconsistent corporate profits that hurt the market in April. The best trading day of the month turned out to be April 10, after which the Dow glided down under 10,000. The final days of trading in April were the worst trading days of the month, as investors continued to struggle with poor corporate profit reports and mixed economic reports.

Earnings in technology and telecommunications stocks once again were down despite some positive trading session, as negative news continued to outpace positive news. The general weakness in this sector still bothers investors and helped push the NASDAQ to more losses. Retailers continued to perform better in April, with discounters once again leading the way. Energy stocks were mixed in April as oil prices remained fairly steady throughout the month, although still at high levels. Health care and housing-related stocks were still the best bets among stocks to invest in as these sectors have been performing consistently better for the past few months. The financial sector was mixed as, despite all the mixed reports, there are still signs of a recovery in the economy. Travel and leisure stocks performed quite well in April, as consumers are finally starting to spend some money in these beaten-down sectors. Transportation stocks in airline and automobile industries again showed gains as the data shows that consumers are taking advantage of discounted airfares and good deals on new cars.

The scary aspect of April is that the tenth was the only really strong day. Strong corporate profit reports on this day carried the market to its largest triple-digit gain. Market players tried to keep the Dow above the 10,000-point mark for the entire month, but pessimism over corporate profits and continued accounting concerns pushed it back below. The last trading sessions really saw the market sink, although market players did try a bargain-hunting rally on the last day of the month. It was still not enough to keep indices from dropping back. Days of declines outnumbered days of increases. The Dow closed the month with a 4.0 percent loss, while the NASDAQ recorded a decline of 8.2 percent. The S&P 500 also declined, finishing down 5.7 percent for April. The S&P 500 is now back at levels not seen since the September 11th disaster. The Russell 2000 recorded a 0.8 percent increase, the only major index to record a gain in April. The market-encompassing Wilshire 5000 index also decreased by 4.9 percent in April.

Treasury Markets:
A return to Quality...
Treasury prices increased and yields fell for most of the month, with significant gains due to a variety of factors. Mixed signs on the pace of the economic recovery began to drive Treasury securities up as market players turned back towards risk-free investment. The only really big stories during April were the weakness of equities and the ongoing struggles in the Middle East. Both of these events led to renewed interest in U.S. Treasuries. While economic reports for most of April showed that a recovery is occurring, it is moving at a much slower pace than previously expected by many market players. Retail sales and a variety of housing reports fell off from previously higher levels. The final days of the month saw stronger-than-expected GDP growth in the first quarter, but weaker gains in manufacturing, and a slight downturn in consumer attitudes, all of which contributed to the positive month for Treasuries.

With no FOMC meeting in the month, market players were left with only speeches and Congressional testimony from Fed Chairman Greenspan and other Fed officials to try and extrapolate the future rate-hike prospects. The last days of the month saw relatively weak action in Treasuries, this despite quite a negative performance in equities.

As can be seen in the chart above, yields declined for most of the month of April. The mid-month figures saw a large downward trend in yields, a positive sign for Treasuries that continued through to the end of the month. The general pessimism in equities and on the state of the recovery helped push Treasuries up in April. The 30-year bond saw a drop of 20 basis points in its yield for April. The 10-year note decreased by 31 basis points, while the 5-year note decreased by 43 basis points. The 2-year note outpaced the other securities and fell 49 basis points, while the 3-month bill showed very little movement for April, down just 2 basis points.

Damir Fonovich, Economist, Econoday