April was a tough month as markets saw steep declines not seen since April 2000. Large cap growth stocks fell double digits while large cap value stocks “outperformed” falling only 6%. The “Powell-put” seems to be ending as market participants strongly anticipate a 50 basis point interest rate hike from the Fed in early May and several times thereafter. Selling was strong on longer duration tech growth stocks in anticipation of higher rates. The spread between corporate bonds and risk-free government bonds is now just below 2018 highs as investors demand a higher yield to take on business and liquidity risk. 40% of China’s economy has been brought to a standstill as new Covid cases emerged, further dampening any hopes of a rapid supply chain rebound. Russia continued to wage war on Ukraine, which also kept the price of oil at $100 a barrel or above. Interestingly, mortgage rates soared to over 5.4% and 55% of S&P 500 companies reported an average first-quarter earnings surprise of just 3.5%, below the five-year average. 8.9%. There always seems to be a lot of financial headwinds, but are investors selling in May and walking away or have we finally hit rock bottom?
The April Purchasing Managers Index® (PMI) recorded 55.4%, down 1.7 percentage points from the March reading of 57.1%. Similarly, the Conference Board Leading Economic Index® (LEI) rose 0.3% in March to 119.8 (2016=100), after rising 0.6% in February and falling 0.5% in January. April’s PMI reading indicates economic expansion for the 23rd consecutive month. The unemployment rate fell to 3.6% in March (3.8% in February) as companies began the process of rehiring. April unemployment figures have not yet been published.
For the month, the Singular hedge list underperformed the S&P 500 and Russell 2000 by (599) and (484) basis points, respectively. Year-to-date, the Singular hedge list has underperformed the S&P 500 and Russell 2000 by (379) and (11) basis points, respectively. Since our inception in 2004, the Singular hedge list has outperformed the S&P 500 and the Russell 2000 by 372 and 418 basis points annualized, respectively.
For the month of April, SAMG and AE were our best positive performers as both companies represent the consumer staples and oil/gas sectors which are defensive. ACU and ARC were not far behind as they also operate in more defensive industries.
RIOT was our worst performance of the month as the price of Bitcoin fell to a six-week low of $38,450 as investors fled risky stocks. OTCQX: VYGVF also underperformed as low crypto trading volume and cease-and-desist orders from eight states continued to spook investors. OTCQX:BBKCF, LUNA and MMAT also underperformed as investors fled tech stocks to safer, more value-oriented investments.
For the month we have had no new initiations.
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Best of the Uncovered offers new insider reports on around two dozen companies a year, with a focus on under-tracked small and mid caps with significant potential. We provide quarterly earnings reports for all companies covered, as well as flash reports on important company announcements. We go a step further for members, providing recorded interviews with the management teams of covered companies when available and a monthly “Market Indicators and Strategy Report” based on quantitative data.