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Monthly Market Commentary

April 2024

  • The performance of U.S. equity markets in April was a notable shift from the previous month's record-breaking highs.  The S&P 500 experienced a significant downturn, marking a 4.09% decrease and breaking a streak of five consecutive months of growth.
  • The S&P 500 did better than the NASDAQ and the Russell 2000 in April. NASDAQ was down 4.34%, while the Russell 2000 was down 6.99%.
  • Many of the best-performing stocks year to date, prior to April, had the biggest declines for the month.
  • “Momentum” stocks, which outperformed all this year, gave some of it back in April.
  • “Momentum” are stocks that are outperforming the broad market on the idea of continuance of an existing trend.     
  • Bond yields went up in April. The yield on the 10-year treasury started the month at 4.20% and ended April at 4.69%.
  • The ICE BofA US Broad Market was down 2.4% for April and down 3.1% year-to-date.
  • Emerging market debt held up better in general, with the J.P. Morgan Broad USD Emerging Market Bond down 1.9% in April and down only -0.3%  year to date.
  • Expectations of the Fed cutting the Fed Funds rates continued to decline in April, following economic reports showing continued economic strength and persistent inflation.
  • Fed members have generally been making” hawkish” comments through April following inflation reports at the beginning of the month.
  • Economic data during the quarter shows a slowing but resilient US economy, which is contingent on an acceleration in earnings growth while providing an opportunity of eventual reduction in rates later in 2024.
  • Geopolitical tensions, particularly the military exchanges between Israel and Iran, had a noticeable impact on the market in April. However, the market was resilient, and the damages were not as severe as they could have been. For now, a greater escalation seems to have been avoided.
  • We are halfway through earnings season, with 77% of companies exceeding expectations and a blended growth rate of 3.5%.
  • There is significant dispersion around the median growth rate between sectors, with strength in Infotech offsetting weakness in Materials and Energy.
  • With the market up significantly early in 2024, it was not surprising that the market gave back some of the gains, particularly in the face of rising yields and declining probability of reductions in the Fed Funds rate.
  • We view this recent volatility as “backing and filling,” which presents an opportunity for investors to broaden their equity exposure and extend the duration in a declining yield environment.

S&P 500 Performance

US equity markets were down 4.09% in April, after five consecutive positive months. Slow progress in lowering inflation helped push yields higher, while pushing out the date when the Fed will eventually start lowering the Fed Funds rate. NASDAQ was down 4.34%, while the Russell 2000 was down 6.99%.

The first week of April was the worst weekly performance of 2024 at that time, down 0.92%. The week ending 4/12/2024 was down more, down 1.5%, and after that, the week ending 4/19/2024 was down 3.5% before markets rebounded the final week of April on earnings news.

The market weakness in the first three weeks of April can be attributed to three issues.

  • Expectations of the timeline of the Fed’s FOMC (Fed Open Market Committee) to initiate rate cuts have changed due to economic strength and disappointing inflation numbers.
  • Geopolitical tension in the Middle East.
  • Some companies report earnings beats with weak forward guidance in the Financial and Technology sectors.

As April started, “Good News was Bad News,” with reports of the strength of the economy generating concerns regarding WHEN the Fed would start making cuts to the Fed Funds rate. At the beginning of the year, futures markets indicated an expectation of six reductions in the Fed Funds rate in 2024, while the Fed’s own guidance was three Fed Funds cuts. By April, futures were in line with the Fed’s guidance of three Fed Funs rate cuts, and by the end of April, Futures indicated only one or two cuts in 2024.

The month started with stronger-than-expected economic data. The ISM (Institute of Supply Management) Manufacturing Index gave a higher-than-expected reading indicating expansion. The Prices Paid Component of the ISM rose on, and that started the decline in Treasuries. Fed Chairman Powell said at the time that recent data “has not materially changed the Fed’s picture,” and he still expected the Fed to cut rates this year. Then, several other members of the Fed started making hawkish comments, including The Atlanta Feds Bostic, who said he expected one rate cut in 2024, and the Minneapolis Fed’s Kashkari, who said there might be no cuts in 2024. At the beginning of April, the futures market indicated a 58% probability of a Fed Funds rate cut at the June FOMC meeting. By the end of April the probability was down to a 10% probability. The ten-year treasury yield rose from 4.20% to 4.40% in the first week of April.

U.S. Equity markets accelerated their decline in the second week of April with disappointing data regarding Inflation. The CPI (Consumer Price Index) for March came in at 0.4% vs the consensus of 0.3%. The Annualized number rose to 3.5%, above the forecast of 3.4%. The Core CPI (excluding food and energy) rose to 0.4% vs estimates of 0.3%, and annualized Core came in at 3.8%, also above the 3.7% consensus. Shelter and gasoline contributed over half of the increase. The next day, another Inflation report, the March Producer Price Index (PPI), reported the March PPI was 0.20%, below the consensus of 0.30% and a drop from February’s 0.60%. Core PPI was also at 0.2%, half of what it was the previous month, and the lowest reading since last November. The yearly PPI was up, however, at 2.1%, up from 1.6% the month prior. The market was relieved when the PPI news came out. At the end of the month, the Fed’s favorite inflation report, the PCE (Personal Consumption Expenditure) index, was released with more inflation data. Although in line with expectations, it seemed to confirm what the CPI and the PPI reports showed, that progress toward the Fed’s target has slowed down. Futures odd of a cut in 2024 continued to decline.

In April, there were also new reports on the effect of new higher-than-expected US treasury issuance, and the US Treasury had some weak auctions. The US Congressional Budget Office forecasted an increase in the budget deficit over the next decade, contributing to higher yields.

The Third week in April was the worst for the year, down 3%. The geopolitical worries due to the conflict between Israel and Iran and attacks and counterattacks contributed to the weakness. Crude oil reached a yearly high in April before declining following the attacks and responses by Iran and Israel, possibly because the attacks seemed to be measured and meant not to bring about a greater escalation.

In the last week of April, the market was more “Micro vs. Macro,” with earnings reports being the primary driver of equity returns as April ended. US Equity markets had their best week of the month, up 2.8%, although the S&P 500 was down in the last two days of April.

With the S&P 500 at the halfway mark of the first quarter earnings season, companies have been beating estimates and reacting well. 77% of S&P 500 companies have exceeded analysts’ expectations by an average of 8.4%. For the full year of 2024, earnings estimates are holding up, with expectations of 10% EPS growth, which goes along with our expectation of an acceleration in earnings growth. Our expectation of an acceleration in earnings appears to be intact.

Like last earnings season, the first quarter of 2024 started off slow, then improved as more companies reported. The earnings season started off with negative reactions to earnings reports from financial stocks and chip companies like Taiwan Semiconductor. Many of the outperforming Artificial Intelligence companies were down in the Semiconductor news. It did seem that companies with high expectations had a higher propensity to sell off on the news, and stocks with low expectations had good reactions to meeting lowered guidance.

Earnings this quarter have had big dispersions in terms of earnings growth, with strength in technology, communication services, and utilities offsetting weakness in energy, materials, and healthcare. The Large-Cap “Magnificent Seven” is expected to show 40% earnings growth for the 1st quarter of 2024 vs. single-digit earnings growth for the S&P 500 overall. Looking at forward earnings expectations in the second half of the year, the earnings of the S&P 500, excluding the Magnificent Seven, exceeded the M7 earnings growth by the fourth quarter of 2024, according to Glenmede. This broadening of the earnings story supports our thesis of “broader” participation in the market going forward. We recommend using near-term market volatility to redeploy and add to stocks in market caps and sectors that have underperformed the overall market over the last twelve months. 

Toward the end of the month, the preliminary 1st quarter GDP report came out well below expectations at 1.6%. The report did not cheer the market up with the expectation of a Fed Rate hike coming soon, because the inflation data within the report was stronger than hoped. Much of the miss in the GDP number came from an increased trade deficit and a decline in government spending. Domestic US demand was still up 2.8%, which is not bad. The economy seems to continue to moderate without falling into recession. This is a further confirmation of slowing but not collapsing economic growth, coupled with a reacceleration of corporate earnings we are seeing from 1st Qtr EPS reports. The Fed’s stated case to lower rates is still intact, although slowed down significantly by persistent inflation. We have entered a more volatile phase of the market due to a lack of confidence and clarity in the Fed’s interest rate policy. We feel the narrative of Fed cuts will come back once inflation numbers start showing gradual improvement again later in 2024. This near-term volatility presents an opportunity to add to and diversify equity holdings, whereas the backup in bond yields presents an opportunity to extend durations prior to the Fed cutting rates later in 2024.

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