Hello all - we hope you had a better April than the markets did.
April is historically one of the better months of the year, however, this April turned out to be one of the worst. The Dow lost 4.9% and the S&P 500 fell 8.8%, which was their worst month since the height of the pandemic. The Nasdaq had its worst month since 2008 with a 13.3% drop. This was also the Nasdaq’s 12-worst month ever.
April is historically one of the better months of the year, however, this April turned out to be one of the worst. The Dow lost 4.9% and the S&P 500 fell 8.8%, which was their worst month since the height of the pandemic. The Nasdaq had its worst month since 2008 with a 13.3% drop. This was also the Nasdaq’s 12-worst month ever.
Here’s a closer look at the month:
Volatility picked up this month, with the markets seeing large daily swings. Here’s a look at how much stocks moved every day. We’re nearing volatility levels last seen at the height of the pandemic.
Bond holdings continue to lose value, too, as rates rise (when yields on bonds rise, their prices fall). Below is a bond index ETF’s we use a lot - it’s easy to see how much the prices have fallen.
While a lot of markets are falling, there are others that continue to rise. Many commodity markets keep climbing (which is why there are higher prices for things like food or gas).
The United States dollar has strengthened very quickly, too. There a several reasons for this, but a lot of it has to do with the Fed. They continue to talk about reducing stimulus and raising borrowing rates. Less printing of money, therefore, makes our currency look stronger. Other countries aren’t doing this - in fact, just this week Japan announced they will be printing even more money as stimulus.
The United States dollar has strengthened very quickly, too. There a several reasons for this, but a lot of it has to do with the Fed. They continue to talk about reducing stimulus and raising borrowing rates. Less printing of money, therefore, makes our currency look stronger. Other countries aren’t doing this - in fact, just this week Japan announced they will be printing even more money as stimulus.
_____
Corporate Earnings
We are in the thick of corporate earnings results from the first quarter. The results so far have been pretty decent and earnings have grown about 7.5% over the past year, according to Factset.
Some companies had surprisingly bad results, like Amazon who posted its first quarterly loss in seven years. However, about 80% of companies who have reported so far have done better than analysts estimated.
We are in the thick of corporate earnings results from the first quarter. The results so far have been pretty decent and earnings have grown about 7.5% over the past year, according to Factset.
Some companies had surprisingly bad results, like Amazon who posted its first quarterly loss in seven years. However, about 80% of companies who have reported so far have done better than analysts estimated.
_____
Inflation
Inflation remains a big topic. Data out this month showed inflation reaching another 40-year high.
Inflation remains a big topic. Data out this month showed inflation reaching another 40-year high.
One of the issues we have with the inflation data is the way it is measured - the calculation seems to go out of its way to minimize inflation.
One example we came across this month is the undercounting of the housing costs. Zillow put out their data on housing costs (it’s actually a rent-equivalent), showing a 17% increase. However, the CPI calculation for housing shows a rise of just over 4%. Housing is a big component of the CPI calculation, making up more than 40% of the index, so this has a big impact on the overall number.
In the real world, inflation is much higher than the reported 8.5%.
One example we came across this month is the undercounting of the housing costs. Zillow put out their data on housing costs (it’s actually a rent-equivalent), showing a 17% increase. However, the CPI calculation for housing shows a rise of just over 4%. Housing is a big component of the CPI calculation, making up more than 40% of the index, so this has a big impact on the overall number.
In the real world, inflation is much higher than the reported 8.5%.
As for inflation at the business level - before they pass on the hikes to consumers - the inflation remains at a record high.
_____
Other economic data
Economic data released this month was mostly negative.
We’ll start with the big GDP report, which measures the strength of the economy. Economists were expecting a slight growth in the economy, but the result was actually negative for the quarter This was the first negative quarter since the peak of the pandemic (also, two negative quarters are defined as a recession, so we may be halfway there). With stagnant growth and high inflation, we’re bound to hear the word “stagflation” more and more.
Economic data released this month was mostly negative.
We’ll start with the big GDP report, which measures the strength of the economy. Economists were expecting a slight growth in the economy, but the result was actually negative for the quarter This was the first negative quarter since the peak of the pandemic (also, two negative quarters are defined as a recession, so we may be halfway there). With stagnant growth and high inflation, we’re bound to hear the word “stagflation” more and more.
The manufacturing portion of the economy continued to decline, but the service sector actually showed an increase.
Retail sales showed another gain…
…but excluding gas at the pump, retail sales were actually lower.
Durable goods - which are items with a longer life, like a phone or dishwasher - turned higher.
Sentiment among the public turned lower.
Small business owners continue to be very pessimistic.
The same small business survey noted that inflation remains a big concern for them.
_____
Where does the market go from here?
In the short term, the market looks very oversold (or cheap) and due for a bounce. However, the market has looked cheap at various times recently and the selling has continued. It might not be a bad time to dip a toe in once we see a little more strength.
We aren’t too optimistic on the longer term. The days of the market steadily rising are probably over as the Fed removes more and more of its stimulus and economic growth slows. There may be buying opportunities from time to time, but we think they will be short-lived.
Finally, here’s a look at some of the indicators we follow, which are all showing the market on the cheap side:
In the short term, the market looks very oversold (or cheap) and due for a bounce. However, the market has looked cheap at various times recently and the selling has continued. It might not be a bad time to dip a toe in once we see a little more strength.
We aren’t too optimistic on the longer term. The days of the market steadily rising are probably over as the Fed removes more and more of its stimulus and economic growth slows. There may be buying opportunities from time to time, but we think they will be short-lived.
Finally, here’s a look at some of the indicators we follow, which are all showing the market on the cheap side:
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
