My F&M

Interim Market Update

Share This Article

“April is the cruellest month, …”    – The Waste Land, T. S. Eliot

Spooked markets in April call for a brief interim comment even though we had previously returned to our regular quarterly cycle for market comments.

Both stocks and bonds were down in April.  They are down this year to date through 4/30.  In fact, April was the worst month for the S&P 500 Index since March 2020, down 8.8%.  This year to date, the S&P 500 Index is down 13.9%, its worst Jan-Apr span in many decades.  International stocks were down just a bit less, so the blended index of stocks we use (70% Russell 3000 US stocks and 30% MSCI ACWI ex-US) was down slightly less than the S&P 500 Index at -13.2%.  The tech-heavy NASDAQ Composite Index lost 13.3% in April alone, its worst month since 2008, and is down more than 20% from its highs late last year.

In recent decades, bond holdings often mitigated occasional slumps in stocks.  But taxable bonds are down 9.5% and tax-free bonds are down 6.3% this year-to-date, doing little this time to soften stock declines.

Fortunately, both April and this year-to-date have been periods of significantly positive relative returns for the Value style for stocks and for a low-duration (i.e., short-maturity) approach to bond portfolios.

Several things combined to scare market participants.  In just the last week, Putin and his foreign minister repeatedly warned of escalating war, including the use of nuclear weapons.  The preliminary GDP report was a surprise 1.4% decline for the first quarter.  The CPI inflation report came out in mid-April and was up 8.5% year over year.  The yield on the 10-year Treasury bond essentially doubled this year to date: rising from 1.51% as of 12/31 to 3.0% on 5/2, and the Federal Reserve is expected to push up short-term interest rates by 0.5% this week.  Moreover, the Fed is also expected to announce plans to reduce the size of the Fed’s bond holdings, which might be more significant than the interest rate hike.

None of that is “investor-friendly.”   But what should we make of it?

Market corrections for stocks (that is, declines of -10% to -19%) have historically occurred about every other year, and some of them (but less than half) have extended into bear markets, which are declines of -20% or more (and averaging in the range of -32% for those more severe bear markets associated with economic recessions).  These market corrections and occasional bear markets simply come with the territory of stock investing.  These are certainly tumultuous times today, but such volatility from time to time is just a part of being a long-term investor.  It is to be expected.   We just have to wait them out and get through such periods occasionally as the associated discomfort is the very reason stocks and bonds provide better long-term returns than no-risk cash and bank deposits.