Monthly Market Recap: May 2, 2022

April Market Recap

May 2, 2022 

It was an especially painful month for equity investors. Rather than attempt to sugarcoat that fact, we’ll do our best to put recent market movements in perspective and make sense of current financial conditions.

The S&P 500 lost 8.8% in April, its worst monthly performance since March 2020, when the COVID-19 pandemic blindsided the global economy. Last Friday alone, the Dow Jones Industrial Average fell 939 points (2.8%), the S&P dropped 3.6%, and the NASDAQ plummeted 4.2%. Ouch.

We took our family to Disney World over spring break, a trip that included a ride on the Twilight Zone Tower of Terror. Even with the experience of being on that same ride 25 years earlier, the violent series of ups and downs followed by a lengthy freefall at the end was hard to stomach.

That’s kind of how watching the stock market felt last month. Even when you’ve been through it before, corrections and volatility spikes are never fun.

Consumer Staples (+2.4%) was the only one out of 11 sectors in the S&P 500 to manage positive returns. Energy (-1.6%) also lost considerably less than the major indices. It was a much farther fall for Communication Services (-15.8%), Consumer Discretionary (-13%), and Technology (-11.3%).

Index April 2022 YTD 2022
Dow -4.91% -9.25%
S&P 500+ -8.80% -13.31%
NASDAQ -13.26% -21.16%

The S&P 500’s 13.3% loss through the first four months of 2022 makes this the worst start to a calendar year since the Great Depression. In the last 95 years, only 1932 (-28.2%) and 1939 (-16.8%) saw larger declines. 1942 (-11.9%) and 1970 (-11.4%) were also especially ugly.

Ready for the silver lining? After the awful starts in those four years, the S&P delivered average returns of +18.4% from May 1 through year-end.

The pair of elephants in the proverbial room impeding the path to better performance are Inflation and Tighter Fed Policy. Those are the same two obstacles, of course, that markets have been trying to circumnavigate all year. What changed in April was the Fed’s rhetoric becoming more aggressive.

The Fed minutes released on April 8 revealed that policymakers are strongly considering raising rates by 0.50% the first week of May (a 50-basis-point hike is now the consensus expectation). On April 21, Fed Chair Jerome Powell said “It’s appropriate to be moving a little more quickly (to raise interest rates).” Powell further clarified that taming inflation is “absolutely essential.”

Nine days prior to Powell’s comments, the Consumer Price Index (CPI) report showed inflation has risen to 8.5% (up from 7.9% in March). Evidence is building that year-over-year inflation may be nearing its peak. Once that happens, slowing inflation could be a catalyst for higher stock prices.

US Gross Domestic Product contracted by 1.4% (annualized) in the first quarter, an abrupt reversal following a year in which the American economy posted its most significant growth since 1984. More significant in our view, however, is that consumer spending remained strong, rising 2.7% from a year earlier.

Inflation tends to hurt growth stocks more acutely because future earnings are worth less in inflation-adjusted terms. The growth-heavy NASDAQ certainly proved more vulnerable last month. Its 13.3% decline in April was the NASDAQ’s worst month since October 2008.

Another unique aspect of this selloff is that bonds have performed nearly as bad as stocks. The 10-year US Treasury yield finished April at 2.89% (up from 2.33% a month earlier). It’s the largest monthly increase in bond yields in 12 ½ years (December 2009). The US Aggregate Bond Index has lost 9% year-to-date, although investors who own individual bond ladders are less exposed to those losses.

Not surprisingly, investor sentiment has grown especially negative. Recent surveys show nearly 60% of respondents are feeling bearish, the most pessimistic readings since February 2009. In contrarian terms, we view this as a positive indicator. The Feb. 2009 readings occurred just weeks before stocks bottomed during the Great Recession.

International equities lost less than US stocks in April in spite of the US dollar strengthening nearly 5% versus a basket of global currencies. Non-US Developed equities fell 6.7%. Emerging Markets were down 6.1%.

Gold prices declined 2% in April, but remain up 3.5% year-to-date.

 

 

 

Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.

Marks Group Wealth Management performs in-house analysis on companies.  Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings.  The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice.  Additional information is available upon request.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser.  Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.

Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets.  No strategy assures success or protects against loss.  Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Past performance is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

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 NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

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

MSCI EAFE Index consists of the following 21 developed market 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 United Kingdom.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.