Noteworthy Numbers

22.2

Motor Vehicle Insurance increased 22.2% year-over-year attributing to recent inflation increases. 

9

The S&P 500 Real Estate sector is the only negative S&P sector year-to-date and is down by 9% during that period.  

1.6

U.S. GDP grew 1.6% in the first quarter. The last time GDP was below 2% for a quarter was the second quarter of 2022 when it was negative 0.6%. 

Our Take

By Bobby Moyer, Advisor & Sandy Wiggins, Managing Director

The S&P 500 ended April down 4.08%, which was the index’s first negative month since October of last year. Small and Mid cap stocks were hit the hardest during the month as the S&P 400 mid cap index was down 6.02% and the S&P 600 small cap index was down 5.61%. Year-to-date Large Cap growth stocks remain positive by 8.35% and the S&P 500 as a whole is up by 6.04%. International stocks faired better than US stocks in April as the MSCI EAFE International Index was down only 2.46% for the month. The MSCI Emerging Markets Index was actually positive for the month up 47 basis points. Fixed Income also struggled in April as interest rates rose on the long end of the yield curve. The Bloomberg US Aggregate Bond Index was down 2.46% for the month and is now negative 3.28% for the year. In comparison, the Bloomberg US 1-3 Year Index, which measures the returns of shorter-term bonds, was only down by 33 basis points.

When looking at the S&P 500 sector returns Utilities was the only sector in positive territory in April up 1.65%. Energy and Consumer Staples were the next best performing sectors for the month, each down less than 1%. Real Estate was the hardest hit sector in April and was negative 8.5% and the sector is now down 9% year-to-date as it continues to be impacted by higher interest rates. Real Estate is the only sector negative year-to-date. Communication Services remains the best performing sector for the year up 13.42% with Energy slightly behind returning 12.82%.

Inflation and the Federal Reserve’s response remains a huge driver of the markets in 2024. The Consumer Price Index surprised to the upside in the most recent report and rose to a 3.48% year over year increase, the highest CPI reading since September of last year. This rise in inflation sent the markets tumbling as investors dealt with inflation acceleration fears and the possibility of no interest rate cuts in 2024. This also sent interest rates higher and pushed bond prices down. April’s market returns felt very reminiscent of 2022 when both stocks and bonds were negatively impacted by inflation and rising interest rates. However, it wasn’t all bad news on the inflation front as core PCE, the Federal Reserve’s preferred inflation metric, came down to 2.82% on a year over year basis, its lowest reading since March of 2021.

As the Federal Reserve charts their path forward, there have been some minor cracks appearing in the economic data. First quarter GDP came in weaker than expected at 1.6%. This was the first quarterly GDP report lower than 2% since the second quarter of 2022 when GDP was negative 0.6%. The Job Openings and Labor Turnover Survey (JOLTS) report came out for March on May 1^st and showed that job openings fell to their lowest level since February 2021 and below economists’ expectations.

Also on May 1^st, Fed Chairman Jerome Powell, announced that the Federal Reserve Open Market Committee would leave interest rates unchanged coming out of their recent meeting. Jerome Powell also said he did not foresee rate hikes being necessary as he was confident that their current policy rate was restrictive and would bring inflation down to their 2% target over time. He also hinted that the FOMC’s next move would be a rate cut but would not commit to a timeline for when that could happen.

This is a pivotal time for both the economy and the Federal Reserve as we are seeing cracks in the economic date while inflation is plateauing above a healthy number. Some softening of the labor market and weakening economic growth could be what the Fed needs to finally get inflation back to their goal of 2%. For investors, the key in times of uncertainty is to make sure your portfolio aligns with your risk tolerance and your long-term goals. It is important to have a portfolio that you are comfortable riding out these windows of uncertainty.