The equity market stumbled in April as the S&P 500 decreased by -4.1%, breaking the streak of five consecutive positive months. The 2024 year-to-date return is now +6.0%.  The S&P also suffered its largest decline of the year when the index fell by -5.4% from the beginning of the month through April 19th.  The market weakness was caused by higher-than-expected inflation data, which pushed interest rates higher and lowered the projected number of Federal Reserve rate cuts this year.  Performance over the last several years reinforces our belief in a long-term viewpoint as markets can be incredibly volatile over the short term. Please see our Client Question: Principles for Long-Term Investing.

  • Still Close to the All-Time High: The index ended the month at 5,036 or about -4.2% below the all-time closing high of 5,254 achieved on 3/28/24.
  • Recent Performance Still Impressive: Despite the minor pullback, the market is still up by over +44% since the 2022 bear market bottom reached on 10/12/22.
  • Earnings: Nearly 50% of S&P 500 companies have reported first quarter earnings and results have come in a bit better than expected. Earnings growth is projected at +3.5% year-over-year, compared to an expectation of +3.2% at the beginning of the quarter. Source: Factset.
  • Market Cap: Large (S&P 500: -4.1%) outperformed Mid (S&P 400: -6.0%) and Small Caps (Russell 2000: -7.0%).
  • Style: Growth (Russell 1000 Growth: -4.2%) narrowly exceeded Value (Russell 1000 Value: -4.3%).
  • Sector: Ten of eleven sectors were down for the month. Utilities (+1.7%) was the only sector in positive territory and Technology (-5.4%) and Real Estate (-8.5%) were the laggards.
  • Upcoming Catalysts: JOLTS Job Openings (5/1), FOMC Meeting (5/1), Apple Earnings (5/2), BLS Employment Report (5/3), Producer Price Inflation (5/14), Consumer Price Inflation (5/15), Retail Sales (5/15), Microsoft Build Conference (5/21 – 5/23), Nvidia Earnings (5/22), and PCE Inflation (5/31).

Short-Term Outlook: Our short-term outlook has been cautious since the market began to run toward all-time highs late last year.  For the stock market to maintain its positive momentum, we will need another year of economic, inflation, and earnings data that exceed already high expectations.  Thus far, economic data and earnings have done their part while inflation readings have recently come in higher than expected.  These crosscurrents have created market turbulence over the past few weeks, and we suspect that the volatility is not over.  We know that market declines are common, and we believe that a pullback to shake out some of the excesses built up over the past several months would be healthy for long-term performance.  Over short periods, we often turn cautious when the market gets greedy and extended, and positive when the market declines and investors begin to panic.  We remain cautious for now.  We would turn more optimistic if this selloff continues to the point where it creates a strong buying opportunity, or if inflation readings improve while economic and earnings data continue at a robust pace. 

Long-term Investment Philosophy: Although our short-term outlook changes based on current conditions, our long-term outlook remains optimistic for investors with both a comprehensive financial plan and investment process. Markets have historically increased over time despite frequent drawdowns as successful corporations have been able to figure out ways to generate profits through advances in innovation and productivity. To capitalize on the power of compounding, we believe in the benefits of staying Disciplined, Opportunistic, and Diversified, while striving to Mitigate fees, taxes, and expenses.

  • Disciplined: consistently applying our investment process and philosophy, which are grounded in a long-term approach.
  • Opportunistic: rebalancing, repositioning, and tax-loss harvesting to take advantage of market volatility and
  • Diversified: seeking to ensure that portfolios are properly allocated across and among asset classes to enhance consistency.
  • Mitigate: striving to avoid unnecessary disbursements, including fees, taxes, and expenses.

In our opinion, adhering to a structured process and executing on all these components should help keep our clients on track toward pursuing their long-term objectives. Historically, equity markets have recovered from recessions and downturns. Past performance is no guarantee of future returns. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Data sourced from Bloomberg as of 4/30/2024.

Fixed Income Markets

Interest Rates

Yields increased across most of the Treasury curve as higher than expected inflation data lowered the forecasts for the total number of Federal Reserve interest rate cuts this year.  Both the 2-Year (5.04%) and the 10-Year (4.68%) Treasury yields increased by over 40 basis points (bps) in the month.  The increase in yields created a headwind for the fixed income markets as bond prices move inversely to interest rates and credit spreads.

Short-term Bonds

Short-term bonds have closer maturities and are consequently less interest rate sensitive than intermediate- or long-term fixed income securities.  Pursuing stability and income from short-term bonds, including Treasuries, has been a successful strategy as yields remain elevated.  Short-term Treasury yields, including, the 3-Month (5.4%), 6-Month (5.4%), and 12-Month (5.2%) are still at their highest levels since the early 2000s.  Once the Fed starts cutting the federal funds rate, short-term Treasury yields should also decline.  We don’t expect +5% short-term yields to be around forever, but we are opportunistically enjoying them while they last.  If interested, please speak with your advisor about our Cash Alternatives Strategy, which is an investment strategy designed to invest excess cash in a conservative portfolio of short-term fixed income securities.  Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.  Investing involves risk including loss of principal. This strategy and its related holdings are not FDIC-insured.

Intermediate-Term Bonds

The Bloomberg US Aggregate Bond index (Agg), which acts as a proxy for the intermediate-term investment-grade bond market, decreased by -2.5% as the 10-Year Treasury yield increased (bond prices move inversely to interest rates and credit spreads).  The Agg has now declined by -3.3% in 2024.

We hold intermediate-term fixed income in diversified portfolios to pursue ballast and income.  The last few years have been frustrating for intermediate-term fixed income investors as bonds produced negative returns in 2021 and 2022.  We continue to recommend a patient approach, as all else equal, we expect intermediate-term bonds to provide both ballast and positive returns in the future if yields either stabilize or decline.  We will highlight that the bond market’s performance since late last year is a great example of what happens when yields fall.  From October 19th through the end of the month, the 10-Year yield fell by about -30 basis points while the Agg increased by +5.7%.

Intermediate-term bonds are still an attractive investment opportunity in our opinion as the yield to maturity on the US Aggregate Bond index ended April at 5.3%.  Yield to maturity is defined as the estimated annualized rate of return an investor can expect on a bond if purchased today and held to maturity, assuming the issuer makes all their interest and principal payments (i.e., no defaults).  In our view, patient investors should be optimistic about intermediate-term fixed income returns over the next several years.  Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Source: Bloomberg.

Monetary Policy

I think it’s unlikely that the next policy rate move will be a hike.  We are prepared to maintain the current target range for the federal funds rate for as long as appropriate. We’re also prepared to respond to unexpected weakening in the labor market. – Fed Chair Jerome Powell

At their May 1st meeting, the Federal Open Market Committee (FOMC) left the top end of the federal funds rate unchanged at 5.50% for the sixth consecutive time.  After raising interest rates by 5.25% total, the Fed has been on hold since July 2023.

According to Bloomberg, at the beginning of the year market pricing indicated an expectation that the Fed would lower interest rates by about 150 basis points in 2024.  As inflation has consistently been higher than expected in recent months, projections have decreased to about 35 basis points worth of cuts.  This now implies that the Fed will lower rates 1 to 2 times this year.

Going into the latest Fed meeting, the market was worried that Fed Chair Jerome Powell might state that the committee is thinking about raising interest rates again.  Powell pushed back against this notion by stating that the Fed’s base case is still to either maintain rates at current levels if inflation remains elevated or to cut if economic or inflation data weakens.

The Fed also announced that starting next month their Quantitative Tightening program will slow down as the monthly cap on Treasury redemptions will shrink from $60 billion to $25 billion.  The Fed’s balance sheet now stands at about $7.4 trillion, down from a peak of nearly $9 trillion in 2022 due to all the monetary stimulus programs enacted during the pandemic.   The Fed still thinks they can reduce the balance sheet close to its pre-pandemic size, but the decision to slow the runoff will inject more liquidity into the financial system compared to recent months.  This should be supportive for keeping long-term interest rates lower in the near term.

In our view, whether the Fed cuts by 25 or 100 basis points this year does not make a huge difference.  The important point is that monetary policy will be less restrictive compared to the previous two years.  That development has already made a positive impact on markets and the economy, and it should continue to be supportive moving forward.

Please see our Client Question on The Fed, which details the impact monetary policy has on the economy, interest rates, and stock prices.

US Economy

The US Economy continues to grow at a solid pace, supported by a strong labor market and consumer spending.  Real GDP growth for 2024 is currently estimated at +2.4%, that is up from a projection of +1.2% at the start of the year.  The BLS Employment Report for March showed an increase of +303,000 jobs in the month while the unemployment rate dropped to 3.8%.  Retail Sales during the month also came in at a healthy 4.3% year-over-year.  Consumer spending data is critical as consumption drives about 70% of GDP.

Additionally, most people have benefited from rising asset values and home prices.  According to the Federal Reserve, total net worth for households and nonprofit organizations in the US increased to a record $156.2 trillion at the end of 2023.

On a downbeat note, inflation data has mostly exceeded expectations this year.  This has pushed interest rates higher and caused markets to lower forecasts for Fed cuts this year.  For the last several quarters, we thought that the key to economic growth was for inflation to become contained so the Fed can stop their tightening cycle before higher interest rates eventually lead to cracks in the labor market and/or the broader economy.  We will need to see more signs of disinflation for the economic expansion and market rally to continue.

April 2024 Returns


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies pro- moted will be successful.

All indexes mentioned are unmanaged indexes which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The S&P Midcap 400 Stock Index is an unmanaged index generally representative of the market for the stocks of mid-sized US companies.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

The Russell 3000 Growth Index is an unmanaged index comprised of those Russell 3000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Value Index measures the performance of those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values.

The prices of small cap stocks and mid cap stocks are generally more volatile than large cap stocks. The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa. Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.

The MSCI US Broad Market Index captures broad US equity coverage. The index includes 3,204 constituents across large, mid, small and micro capitalizations, representing about 99% of the US equity universe.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

The Barclays Capital US Corporate High Yield Bond index is an index representative of the universe of fixed-rate, non-investment grade debt.

The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

The Bloomberg Barclays US Treasury Bills 1-3 Month Index is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than or equal to 1 month and less than 3 months. The Index includes all publicly issued zero coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and at least 1 month, are rated investment grade, and have $300 million or more of outstanding face value.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield.