April saw both stocks and bonds fall, with the Nasdaq turning in its weakest performance since 2008. The so-called FAANG stocks – Meta Platforms (Facebook), Apple, Amazon, Netflix, and Alphabet (Google) – led the way down, giving back more than $1 trillion in value during the month. The S&P 500 fell for four straight weeks to end the month down -8.8%, the biggest decline since the pandemic-induced sell-off in March 2020. The Dow was off -4.9% (Wall Street Journal, April 29).
Bonds didn’t do much better. Both newly appointed Fed Vice Chair Lael Brainard and Chairman Powell spoke out to suggest that interest rates were likely to rise further and faster than previously thought. An April 6 Bloomberg headline told the tale, “Global bond selloff deepens as Fed steps up tightening rhetoric” (Bloomberg, April 6). Bonds extended an eight-month losing strength, the longest on record, according to the news service (Bloomberg, April 6).
But, of course, an 8-month downturn is nothing in the context of the bull market in bonds, which has had interest rates on a downward trend since the Volker era at the Federal Reserve in the 1980s. That increasingly seems to have drawn to an end. The Fed did indeed approve a 50 basis points rise in the Fed funds rate at its May 4 meeting, and suggested that rates would continue to rise throughout the year (Wall Street Journal, May 5). It was the biggest hike in two decades (CNBC, May 4).
Inflation Up, GDP Down
Inflation remained at or near 40-year highs, with the Consumer Price Index up 8.5% in March on an annualized basis (Bloomberg, April 12). The Producer Price Index rose 11.2% (Bloomberg, April 13).
GDP went in the opposite direction, contracting by -1.4% in 1Q, with much of that attributed to a surging trade deficit. Ex-trade the underlying data was generally strong, including a 2.7% rise in personal consumption (Bloomberg, April 28). Economists, and markets, generally shrugged off the surprising negative read.
Meanwhile, other news was more positive. The jobs market continued to impress with new jobless claims falling to 168,000 early in the month, the lowest level since 1968 (Wall Street Journal, April 7). The odds of getting laid off were at a 50-year low (Wall Street Journal, April 15), even as worker pay and benefits rose at a record pace (Wall Street Journal, April 29).
Outside the U.S., the war in Ukraine raged on and its economic impact was felt in rising prices for both energy and food, and growing concern over a grain shortage in some parts of the world. A resurgence of the coronavirus in China, and the subsequent lockdown of Shanghai combined to knock 5.0% off Chinese stocks late in the month (Wall Street Journal, April 25), capping a generally abysmal period for the world’s second-largest economy.
In the U.S., earnings growth began to slow as year-over-year comparisons started to normalize post the Covid shutdown. Through the month’s last week, corporate profits were on track to rise 7% for the quarter, according to data from FactSet (Wall Street Journal, April 29). Should that be the case, it would be the lowest year-over-year earnings growth rate since the last quarter of 2020.
The CBOE Volatility Index (VIX) provided a snapshot of all this uncertainty, up better than 60% on the month. In the meantime, the dollar rallied and cash found new fans, potentially setting the markets up for a future rally (Wall Street Journal, April 25). We’ll all obviously be watching very closely as May unfolds.
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The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The Producer Price Index (PPI) is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.
The GDP is the total of all value added created in an economy. The value added means the value of goods and services that have been produced minus the value of the goods and services needed to produce them, the so-called intermediate consumption.
Chicago Board Options Exchange's CBOE Volatility Index, a popular measure of the stock market's expectation of volatility based on S&P 500 index options.
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