In April we experienced the first negative equity environment since late in 2023. Equity market declines resulted in part from inflation data during the month, which was a harbinger of the Federal Reserve interest rate cuts not being imminent. As markets adjusted to the reality of higher rates for longer, bond markets were also negative in the month, continuing the trend we have experienced for most of 2024. The April markets also reminded investors of the difficulty of making investment decisions on economists’ predictions regarding the direction of interest rates.
Equity markets
For the one month ended April 30th, the S&P 500 declined -4.1 percent. However, year-to-date return the S&P 500 is still a positive 6.0 percent. Both growth and value were down about the same level, while the more interest rate sensitive small cap stocks declined more, with the Russell 2000 -7.0 percent in the month and is now negative -2.2 percent year to date. Non-U.S. stocks were also negative in the month (-2.6 percent) but outperformed the U.S., as inflation outside the U.S. is tamer and the expectation is that the ECB will begin cutting interest rates soon. Emerging markets were also slightly positive in the month (+0.4 percent).
While a down month, it is important to remember the significant appreciation investors have experienced in the last six months through April, with the S&P 500 up 21.0 percent, the Russell 2000 is up 19.7 percent, EAFE is up 18.9 percent and Emerging Markets are 15.6 percent.
April 2024
Fixed income
Did the market finally get “reality”, so to speak? We began the year with the expectation by many observers of six interest rate cuts, which seemed like a lot even back then. Then the Federal Reserve chairman told the market possibly three cuts. Today the futures market is predicting only one or two, and some prognosticators think the Federal Reserve could raise interest rates this year. Quite a change in sentiment in a relatively short period of time. As a result of this changing mood, interest rates rose across the curve and the Bloomberg Aggregate was down -2.5 percent for the month of April; year to date is down -3.3 percent. All fixed income assets were negative in the month and as a result year-to-date returns for fixed income assets are also by and large negative. With the Fed pivot in the rearview mirror, could we finally see this positive real income environment result in positive returns for bonds? It is possible, especially as you consider that fixed income returns have historically been highly correlated to the income of a bond. Investment Grade corporate fixed income coupons are around 6 percent and the 10-year Treasury ended the month at a yield of about 4.7 percent (see chart below).
U.S. Treasury Yield Curve
Looking ahead
First quarter earnings reports are strong, as are the fundamentals of the economy for both the U.S. and Developed Non-U.S. A healthy labor market continues to underpin solid retail sales, which has in turn helped cause the stubborn inflation numbers we have seen of late. So, while the positives turned into a negative in the most recent month of market data, a focus on the good news is worth considering as we move further into the year.
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The information and opinions herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This article and the data and analysis herein is intended for general education only and not as investment advice. It is not intended for use as a basis for investment decisions, nor should it be construed as advice designed to meet the needs of any particular investor. On all matters involving legal interpretations and regulatory issues, investors should consult legal counsel.
