Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I wanted to spend a few minutes to give you an update on the markets for the month of April.

Market Returns for April

Stocks unfortunately ended their worst month of the year on another low note. The S&P 500 fell 4% in April, its worst performance since September, after posting its best first quarter performance since 2019. The S&P 500 is still up about 6% for the year. With higher interest rates, smaller cap stocks pulled back, as well, down about 6.85% for the month and are now down about 2.15% for the year. 

Leading to some of the downside volatility and higher interest rates has been the market repricing the probability of higher interest rates for longer, as inflation remains sticky. The Federal Reserve’s preferred gauge of inflation rose in March at an annualized rate of 3.4% in the first quarter, nearly double the 1.8% pace logged during the fourth quarter.

GDP

The U.S. economy grew at 1.6% for the first quarter, which was less than the anticipated growth of 2.4%. This was the slowest pace in nearly two years. The slowdown largely reflected a pullback of growth in consumer spending, as well as exports and government spending. 

Federal Reserve/Inflation/Interest Rates

Given the latest trend in inflation, the market is now only anticipating one interest rate cut this year, which is a far cry from the market’s expectations for six rate cuts earlier this year. All eyes will be on the Fed’s meeting on May 1st. Markets are anticipating a near-zero chance that the Federal Open Market Committee will announce any change to interest rates. With the latest inflation data, there is a higher likelihood that the Fed will be stuck in a holding pattern, which would keep rates at 5.25% to 5.50% for the foreseeable future.  

As a result of sticky inflation and the market expecting higher rates for longer, interest rates have been trending up. The 10-year Treasury settled at 4.68%, up from 4.20% at the end of March. This was the largest monthly increase in yields since September 2022, which has resulted in bond prices falling. The 2-year Treasury yield recently topped 5%, which is the highest since November of last year. The Barclays Aggregate index was down close to 2.5% for the month and is down 3.2% for the year. 

Corporate Earnings

Earnings season has been off to a good start for the first quarter. So far, S&P 500 companies are growing first quarter earnings by 3.9%, with about 53% of companies reporting so far. Amazon was the latest Magnificent Seven tech stock to report, announcing profits that topped expectations. 

Outlook

After the S&P 500 gained close to 25% over the last five months, it is perfectly normal to see some volatility in the stock market as investors begin to reprice future uncertainty with both Fed policy and the latest upward trend in inflation. Investors will be closely watching the Fed meeting on May 1st for any clues about future interest rate policy. We will also be getting an update on the latest Friday jobs number on May 3rd, which is expected to show an additional 240,000 jobs being added to the economy. Thanks for joining me for this month’s market recap.