Monthly Market Summary
The S&P 500 Index returned -4.0%, outperforming the Russell 2000 Index’s -6.8% return. Ten of the eleven S&P 500 sectors traded lower in April, led by Real Estate.
Corporate investment-grade bonds produced a -3.2% total return as Treasury yields rose, while corporate high-yield bonds produced a -1.3% total return.
International stocks outperformed U.S. stocks. The MSCI EAFE developed market stock index returned -3.2%, while the MSCI Emerging Market Index returned -0.2%.
Stocks & Bonds Trade Lower as Treasury Yields Rise
The S&P 500 posted a negative monthly return for the first time in six months. The 4.0% loss in April cut into the early gains of the first quarter, leaving the index with a positive year-to-date return of 5.9%. A rapid rise in Treasury yields contributed to the move lower in equities, with the 10-year yield rising +0.48% to end April at 4.68%. The Russell 2000 Index, which is more sensitive to interest rate movements, traded lower by -6.8% as rising interest rates weighed on smaller companies. In the credit market, bond prices declined as Treasury yields rose. As discussed below, the prospect of a first-half 2024 interest rate cut continues to diminish.
Taking a deeper look into the S&P 500, Utilities were the only positive performing sector out of the 11. Real Estate was the worst performer, losing 8.4%. The Tech sector, which performed well in the 1st Quarter, gave back some of its gains by posting a negative 5.8% for the month of April.
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An Update on This Year’s Biggest Market & Economic Trends
The S&P 500, despite trading lower in April, has gained +5.9% this year. A significant portion of the S&P 500’s gains have come from a handful of large companies that benefit from increasing investment in AI, which in turn drives demand for data centers, cloud computing software, and semiconductors. In contrast, small cap stocks are trading lower this year due to their sensitivity to higher rates. Smaller companies rely more on short-term financing and floating-rate debt, which causes their interest rates to reset frequently thus missing the benefit of longer-term borrowing that could have been obtained at lower rates.
The sharp rise in Treasury yields is one of the biggest stories this year. At the start of 2024, investors expected the Federal Reserve to start cutting interest rates in March. It’s now mid-May, and March passed without an interest rate cut. What is preventing the Fed from lowering rates? Inflation and employment data. Inflation progress is slowing, and unemployment is still below 4%. The low unemployment rate allows the Fed to focus more on reducing inflation. As a result, investors expect only one rate cut in 2024, down from six at the start of the year. Furthermore, the first cut is not expected until Q4.
Rising commodity prices are one reason that inflation remains sticky. Oil prices have risen +14.3% this year, leading to a +22.5% increase in gasoline prices. Copper, which is a barometer of economic activity due to its wide array of end uses, has gained +17.6%. Higher commodity prices hint at solid underlying demand, and economic data suggests the U.S. economy is adjusting to higher rates. New home sales reached a 6-month high in Q1, and consumers continued to spend despite higher rates. The U.S. economy’s resilience to higher rates is another reason the Fed is not rushing to cut rates.
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This material prepared by TrinityPoint Wealth is for informational purposes only. Additional data provided by MarketDesk Research. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by TrinityPoint Wealth are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. TrinityPoint Wealth, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source.