April Market Wrap: Solid Monthly Performance, But 6 Risks Remain In Play

The Wall Street Journal noted the current run is within striking distance of the record 15-week streak that ended in 1899.

Gains for the transports are clearly due to investor confidence in a strong recovery. The index rose a relatively modest 4.9% in April but is up 22.7% for the year, a performance that's better than the Dow, S&P 500 and the NASDAQ. The index closed above 15,000 for the first time on Apr. 21 and hit new closing and 52-week highs on Thursday.

The index has risen not just because investors believe people will start flying again and that the delivery business of FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) will continue to be strong.

Railroads are surging as well. One reason is that they're moving more stuff than they were during the pandemic. U.S. rail freight traffic this year through Apr. 24 is up 9.4% from a year ago, according to the American Association of Railroads .

Equally important is the prospect that the Kansas City Southern Railway Company (NYSE:KSU), which operates from the Midwest into Mexico, is being courted by Canadian National (NYSE:CNI), with a $33.7 billion bid, and Canadian Pacific (NYSE:CP), offering $25 billion. The idea is to link Mexico, the United States and Canada via one service.

Aerospace giant Boeing (NYSE:BA), however, has not participated in the transport rally. Shares were down 8% in the month as the fallout from the 737 MAX crashes and problems with the 787 Dreamliner continued to affect investor opinions on the company. Plus, it didn't help that Delta Air Lines (NYSE:DAL) recently spurned the 737 MAX for an order of 25 Airbus (PA:AIR) 320 Neos.

Though the market's gains were solid, there were some unsettling moments, suggesting that some investors will sell on the news regardless.

This happened to Microsoft (NASDAQ:MSFT), which easily beat earnings estimates for its fiscal third quarter on Tuesday. The shares had hit a 52-week high just ahead of the report and then sagged, ending the week with a 3.4% loss.

Amazon.com had a similar experience despite crushing estimates with its first-quarter report after Thursday's close. The shares jumped to a new high of $3,553.39 soon after the Friday open, then fell back to $3,467.42 at the close.

And Warren Buffett has come under fire because Berkshire Hathaway (NYSE:BRKa) has been a market laggard of late with returns over the last three and five years trailing the S&P 500. The shares were up 7% in April and are up 18.6% this year.

While the conditions for continued market strength going forward are strong, the risks markets face may become more pronounced.

Here are the top six:

Fears remain that many people are diving into stocks because rates are low and will continue to be so, even as the economy is recovering. The investor narrative says the Fed will protect against a crash or a nasty correction of longer duration.

That thought surely entered the minds of some investors as they watched Microsoft and Amazon shares sell-off. It seems too as if the major averages have been struggling of late to hit new highs.

For the first time in a long time, tech or tech-related stocks were not the big market story for markets. It is not that tech stocks went away. Apple (NASDAQ:AAPL), Microsoft, Alphabet, Amazon and Facebook now represent 25% of the S&P 500's market capitalization. Even if their April stock performances weren't at the eye-popping levels of last year, their financial strength remains powerful.

The recovery in all its messy and uneven trajectory is what's dominating markets now. The Fed has vowed to keep rates low until it can see sustained inflation of around 2%. But prices lately have been jumping, and Fed Chairman Jerome Powell has insisted the inflation the central bank is seeing is transitory.

Some Fed critics believe the Fed's current policy is already reigniting inflationary pressures. And they are worried about the Biden Administration's stimulus plans. (Remember though, they also complained about the Fed when Ben Bernanke was the Fed boss.)

Some inflation worries are true, however. Oil prices collapsed a year ago, falling to as low as NEGATIVE $37.63 because of the panic that COVID-19 had set off. West Texas Intermediate was at about $64 a barrel as of Friday placing it a bit higher than it was before the pandemic.

And crude oil wasn't alone. Interest rates plunged at the start of the pandemic, as did prices for a variety of commodities and other products. But when the markets turned higher, investors searching for big, fast returns went to stocks because rates were and remain so low.

The 10-year Treasury yield ended April at 1.63%, down slightly from March. The yield had fallen to as low as 0.57% in April 2020 and unnerved many when the rate pushed back up to 1.76% on Mar. 30.

But prices of other products have soared. Lumber has tripled, making housing affordability even more difficult for first-time home buyers just about anywhere.

The dollar was weaker in April, especially against the Japanese yen. A weak dollar may help exports over time, but it can also push prices higher.

It is hard to believe that a piece of silicon smaller than a fingernail can cause huge economic worries.

But severe shortages of computer chips used in everything from mainframes to cell phones, microwaves and automobiles are disrupting business.

General Motors, Ford (NYSE:F), Tesla (NASDAQ:TSLA) and companies have had to slow down or even stop some production. Apple and Samsung (OTC:SSNLF) have warned of chip supply issues. Apple said this week the shortages could cost the company $3 billion to $4 billion in sales in the June quarter.

Not much has been said yet about labor shortages. Nevertheless, they're hitting a lot of industries.

Workers laid off don't want to come back or have moved. The Cass Truckload Linehaul Index , which looks at pricing trends for trucking services on a per mile basis broke a record set in 2018. Upward pressure is likely to persist because of the recovery—along with shortages of trucks and, equally important, drivers.

One would be foolish to believe the COVID-19 pandemic is totally behind us.

In many parts of the United States, COVID infections and hospitalizations are declining. But not everywhere.

And the big fear is what happens if vaccines from Moderna, Pfizer and Johnson & Johnson (NYSE:JNJ) can't protect against the variants now raging in India and Brazil.

Two areas within this realm are worth watching too, since that can also affect markets.

The United States does not have a great relationship with China, in part because China wants to be the dominant player in the western Pacific region. And China wants to bring Taiwan directly under its control.

Then there's Russia. What is problematic is Putin's interest in gaining more control over Ukraine. Russia massed military personnel on the Ukrainian border in April but ultimately pulled back. The question is how Europe would react to an invasion.

Written By: Investing.com