2024 April Market Update

Stocks generally finished lower in April as the S&P 500 broke a streak of five consecutive positive months. The 5% pull back was only a dent in the large rally off the lows of last October and was not surprising given the historical average of three such pullbacks a year. Weakness was widespread, as economic data indicated lingering inflationary pressures and markets priced in more hawkish commentary from the Federal Reserve.

As has been the case for much of the past few years, many supposed experts have failed to accurately forecast rates and Federal Reserve policy. Markets entered the year projecting five interest rate cuts in 2024, which was worked down with new economic data to three cuts by late March. Today, the forward curve prices just one rate cut through the end of the year and some pundits are even predicting rate hikes. Equity volatility has ticked up as markets continue to oscillate between discounting increasingly hawkish Federal Reserve policy and incorporating resilient economic data and strong company earnings.

This recalibration to “higher for longer” Fed policy continues to prove the folly of economic forecasting. If the Fed and leading market “experts” cannot predict economic data, what makes anyone believe that they can? While short-term share price movements are often no more predictable, at least investors with a longer horizon can work to understand the fundamentals and investment theses behind promising investments. History has shown that stocks can fare quite well in a higher rate environment. However, higher rates also tend to expose weaker companies that don’t have the strength to navigate a more constrictive economic environment. Divergences in performance at the company level have been increasing, with superior operators showing resiliency and being rewarded for their durability and earnings growth.

Meanwhile, major indices continue to become more concentrated; their performance dictated by fewer and fewer companies. For example, April 19^th saw the NASDAQ 100 index trade down 2%. But over 70% of individual stocks traded on the New York Stock Exchange were up on the day. Simply put, an index investor might find performance dictated by the idiosyncratic risks of a few companies rather than the broader market forces that drive a diversified portfolio. If inflation remains at a higher rate than experienced for much of the past 15 years, the playbook of relying on a rising tide to lift all boats might not work. Proper analysis of company fundamentals – for balance sheet strength, earnings resilience, and growth prospects – could again prove paramount.

While higher rates have proven a headwind to bond prices, the prevailing rate environment has extended the opportunity to purchase fixed income securities at very attractive yields. Intermediate- and long-term yields have risen with the “flattening” of the yield curve over the past several weeks, and now provide a better reward for investors adding duration to their fixed income portfolio. Remember, there exists a very strong historical correlation between starting yields and fixed income returns over the next 7-10 years; today’s headwind could become tomorrow’s tailwind! Although elevated and relatively stable money market rates are certainly attractive in an increasingly volatile landscape, they are immediately subject to any changes in Fed policy. Maintaining an outsized position in cash or cash equivalents is more of a call on the direction of rates than a truly conservative strategy. Where appropriate, we prefer the rate agnosticism and balance of a “laddered” fixed income portfolio that offers exposure to a diversified range of maturities.

Now roughly halfway through 1^st quarter earnings reporting season, we are encouraged by the resilience of corporate earnings and profit margins in this inflationary environment. Unlike the downward analyst revisions of previous quarters, aggregate quarterly earnings are tracking above the 5% year-over-year growth expected a month ago. The U.S. consumer remains strong and credit conditions at the individual household (and corporate level) have not notably deteriorated. Calls for the return of the dreaded “stagflation” appear premature, but we will be monitoring the persistence of inflationary pressures alongside any slowdown in overall economic growth. Meanwhile, prospects for significant, durable tailwinds to productivity from Artificial Intelligence initiatives could re-ignite growth across all market sectors. As always, we will do our best to help you navigate these confusing crosswinds.

For more of our thoughts on markets today, please give us a call; we’re always happy to hear from you!

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the Wise Investor Group and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investments mentioned may not be suitable for all investors. The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. There are special risks associated with investing with bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk, reinvestment risk, and unique tax consequences. To learn more about these risks and the suitability of these bonds for you, please contact our office. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance may not be indicative of future results.

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