April Market Commentary

Market Commentary

US Stocks sharply declined in April as markets focused on more aggressive Federal Reserve comments on the path of future interest rate increases. Earnings for S&P 500 companies continue to be strong. Of companies that have reported so far, about 80% have beaten analyst expectations. Economic news was mixed over the month. US employers added 431,000 workers to their payrolls in March, slightly below the estimated 490,000. The unemployment rate fell to 3.6% from 3.8% in February. US real GDP (inflation-adjusted) unexpectedly fell short of economist estimates and shrank by 1.4% in the first quarter, down from the 6.9% growth rate in the fourth quarter. Consumer spending continued to be strong, rising at an annual rate of 2.7% in the first quarter, up from 2.5% in the prior quarter. Manufacturing grew in March, but at a slower pace than in February. Inflation continued to rise to four decade highs, with the CPI hitting 8.5% over the last twelve months, in line with economists’ expectations. The producer price index rose 1.4%, slightly above estimates of 1.1%. US home prices hit a record in March up 15% versus the year prior, despite rapidly rising mortgage rates.

Foreign stocks also fell sharply for the month as global economic growth decelerated. Businesses around the globe faced headwinds from the effects of the war in Ukraine, lockdowns in China, and high inflation. The European Central Bank (ECB) president stated they would lag behind the Federal Reserve in tightening its monetary policy due to a weakened growth outlook with a possible rate hike coming in the third quarter. The eurozone’s headline inflation rate hit 7.5% in March, another record high, as the war in Ukraine pushed energy and food prices higher. Factories in China had to halt production due to Covid lockdowns putting additional pressure on supply chains. Chinese stocks experienced their worst sell off in two years as concerns over the economic impacts of lockdowns pushed stocks lower. Oil prices ended the month at $104.69, up 5.45% for the month. Emerging markets outpaced developed markets in April and were relatively in line for the year to date, but lagged developed markets over the trailing twelve months.

Interest rates continued to climb in April driving bond prices down for the month. The minutes from the Fed’s March meeting stated they expected to raise the fed funds rate by a half percent at their May meeting and develop a plan for reducing their bond portfolio. Comments from Fed governors throughout the month reiterated the Fed’s focus on taking all necessary steps to bring inflation under control with the potential for multiple half percent fed funds rate increases. The 10-year Treasury yield surged over the month, rising from 2.32% to 2.89%, its highest level since 2018. The average rate for a 30-year fixed mortgage rose above 5% for the first time in over a decade. Treasuries and municipal bonds were the top performers for April and year to date. Shorter term bonds topped longer term bonds over the month, year to date, and trailing year.