April saw equity markets continue to climb. Local markets rose by 2.4%, bringing the return since the beginning of the year to a staggering 13.5% (the S&P/ASX 200 Index since 1st Jan 2019). This is one of the best starts to the year on record.
Investors were buoyed by hopes of an interest rate cut in May. In reality, the RBA decided to leave rates on hold in May, but many now expect at least one rate cut during the year after inflation numbers came in flat against expectations of a 0.2% increase. Equity markets tend to do well if interest rates fall; April’s rally was largely attributable to these expectations being priced into the market.
Overseas markets fared well with US technology shares returning 4.7% in April*, pushing the broader US market to all-time highs. The market moves in the US were driven by stronger-than-expected economic data. China, in particular, showed signs of growth picking up after last year’s slowdown that prompted the big sell-off at the end of the year. A combination of low inflation and higher growth was the perfect environment for investors to embrace risk and push equities to their highs.
Given the strength of the equity market, it could have been expected that bonds would sell-off after their recent rallies, but this wasn’t the case in Australia with government bonds continuing their recent upward trend and returning 0.2% for the month. This may indicate that investors are not fully willing to embrace risk and continue to hold bonds to protect themselves against any prospective pull back.
This combination of positive equity and bond returns means that our investment options continue to perform well. It is the result of our ongoing strategy to assess future risk and adjust our offerings accordingly to help provide our members with the best possible retirement outcomes.
*The 4.7% return in April for US technology shares is the return for the NASDAQ Index for that month, which is a tech-focused index.