I’m not one to wish time away, but I’m glad that April is over, from a stock market standpoint (and also because tax season is over!). The S&P 500 lost 8.8% in April to finish off one of the worst January-April periods ever for that index. The NASDAQ index, which tends to consist of more aggressively growing companies, lost 13%, while the traditionally more conservative Dow Jones Industrial Average “only” lost about 5%.
Listen to the podcast as Scott delves deeper into his market commentary here:
To make matters worse, an investor couldn’t hide in bonds, either. The Aggregate Bond index lost nearly 4% in April, which is a remarkable drop for bonds. The index is now down over 9% in 2022, meaning that you could have lost about as much in bonds as in stocks (the S&P 500 was down almost 13% through April). Bond prices move in the opposite direction of bond yields (interest rates), so while the yield on the 10-Year US Treasury bond surged from around 1.5% in January to 2.88% by the end of April—nearly doubling—bond prices were headed in the opposite direction. These are unusual times, in that bonds tend to move in the opposite direction that stocks do. Plus, investors have gotten accustomed to seeing stock prices go up, so it’s unnerving to see them go down. It’s a natural part of investing, though, and it’s why stocks have, historically at least, given investors higher returns than most other financial assets have.
Portfolios have been difficult to manage this year since we haven’t been able to hide from the stock market correction in bonds, so account values may be down. We could get a bit of a break, though, as investor sentiment is very poor…this is often a contrary indicator for stock prices, meaning that we could get a short-term boost in stock prices. My recession indicators are not flashing yet, so I don’t think there is an imminent recession. And I think we could get some relief on the inflation front, as I expect the really high inflation readings to abate. Corporate earnings reports have generally been good, so I think that the fundamental backdrop for stocks and the economy is still favorable.
Unfortunately, we’re being beaten over the head with unfavorable headlines, such as the high inflation I mentioned, high gas prices, Russia-Ukraine, and manufacturing pressure due to China’s “zero-Covid” policy. Also, there finally is an alternative to stocks. With high-quality bonds yielding around 3%, and considerably more if you’re willing to look at non-government bonds, investors may think about putting money into bonds rather than stocks. So, money that only a few months ago would not have considered bonds, going into stocks instead, is now finding a home in bonds. With more money looking to bonds, and less to stocks, it stands to reason that stock prices won’t fare as well.
I think for investors with a long-term time horizon, say three years and more, you can start putting money to work in stocks and bonds. If you’re inclined to check your statement frequently, or if you will need some money from your account for a purchase, I’d suggest being patient. While there will likely be ups and downs, the near-term trend for stocks is downward, and I’d respect that, for now. Let’s hope it changes soon, but we probably need more clarity on China’s Covid response, the Federal Reserve’s stance on interest rates and inflation, and Ukraine before we get much upside traction.
In May, our offices will be closed on May 30 in observance of Memorial Day. In the meantime, please don’t hesitate to reach out to me or your financial advisor with any questions or concerns regarding your portfolio or to check-in to see how your Signature Life Plan is holding up in the midst of the market turbulence.