April Market Recap
April was relatively light on big financial headlines, at least compared to a month earlier, which led to a lot of sideways grinding for the major stock indices.
All three equity benchmarks finished slightly positive and the VIX Volatility Index sank to its lowest mark in 18 months. As inflation continues to ebb and economic growth slows, there has been a growing sense of calm since the regional banking panic caught investors by surprise in March.
Communication Services (+3.6%) was the best-performing equity sector in April thanks to strong gains from Meta and Alphabet, which make up nearly half the sector based on market-cap. Consumer Staples (+3.4%), Energy (+3.2%), and Financials (+3%) also outperformed. Three sectors (Industrials, Consumer Discretionary, and Materials) finished negative in April, but none lost more than 1.2%.
From a broader perspective, the S&P 500 sits almost exactly midway between its all-time high (January 2022) and its October 2022 low.
Benchmark Returns: April 2023 | YTD 2023
+2.48% | +2.87%
+1.46% | +8.59%
+0.04% | +16.82%
ECorporate earnings season is a little more than halfway complete and so far the numbers can be summarized as good but not great. Blended earnings for S&P 500 companies are on pace to decline 3.7% compared to a year ago. That’s better than consensus expectations of a 6.7% decline (as of March 31), but we still appear headed for an “earnings recession.” Blended earnings declined in Q4 2022 as well.
The timing of a potential economic recession, meanwhile, can be delayed at least another three months. Initial estimates provided by the US Commerce Department suggested the US economy grew 1.1% annualized in Q1. That’s down from GDP growth of 2.6% in Q4. Still, the stock market reacted favorably. The S&P 500 rose nearly 2% on the news, its best single-day performance since January.
Company forecasts tend to be closely scrutinized when growth turns negative and many corporations are cutting costs to compensate for slowing growth. Medtronic and 3M are among the Minnesota companies who will reportedly be implementing significant layoffs in the months ahead.
Inflationary pressures continue to moderate. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures Index (PCE), showed 4.2% inflation in the last 12 months (down from 5.1% a month earlier). The latest Consumer Price Index (CPI) showed year-over-year inflation of 5% (down from 6% a month earlier). It’s the lowest headline CPI number in two years.
San Francisco-based First Republic Bank – the country’s 14th largest lender – became the third US bank to fail in the last two months when regulators announced late on April 30 they had facilitated a sale to JPMorgan Chase. Investors are hopeful that JPMorgan CEO Jamie Dimon is correct when he stated, “This part of the crisis is over.”
The Federal Reserve had no policy decisions scheduled in April, though Chairman Jerome Powell will announce the next potential rate hike on May 3. The Fed is expected to raise its Fed Funds Rate by an additional 0.25%, the same as was announced in March.
Small-cap stocks endured another difficult month. The Russell 2000 fell 1.9% and again lagged its larger-cap counterparts. Small-caps are basically flat year-to-date. Non-US Developed equities gained 2.9% in April, but Emerging Markets lost 0.8%. This despite Chinese GDP growing 4.5% (annualized) in the first quarter.
The US unemployment rate fell to 3.5%. Gold prices rose 1%. Crude oil prices increased 1.4%.
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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.
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