For the month of April, the markets continued to wrestle with issues carrying over from the first quarter. In addition to those known issues, Q1’s GDP was reported last week and highlighted what some market analysts feared, the US economy is slowing. US companies have begun reporting Q1 earnings and the results thus far have been mixed. As a result, we saw price declines in all major asset classes for the month with the S&P 500 down 8.8% and Nasdaq down over 13%.
As mentioned earlier, the market is still managing with the issues present in Q1. Inflation is still running high with the last reading posting an increase of 8.5% year over year for CPI. The Russian/Ukraine war is ongoing as fighting has intensified in the last couple of weeks. And the Federal Reserve is on course to continue to raise interest rates in an effort to reduce inflation.
The first reading of Q1’s GDP came in with a decline of 1.4% for the quarter. This surprised many market participants leading to questions about the resiliency of the economy in the face of ongoing inflation. Comments from the Federal Reserve did not seem perturbed by the report. In the first week of May, we will hear the outcome of the Fed’s two-day meeting. The market anticipates a rate hike of 50bps and possible disclosure of the reduction in the Fed’s balance sheet, i.e., selling bonds back to the market that were purchased during quantitative easing.
Companies have been disclosing Q1 earnings over the past couple of weeks with mixed results. While majority of companies are posting better than expected revenues and profits, many companies are reducing their forward guidance used to set future expectations. Inflation and supply constraints have been a constant theme in earnings calls as executives attempt to manage new lockdowns hampering supply and continued shortages attributed to the issues ongoing from Q1. This has led to an increase in stock market turmoil. In the face of uncertainty, the market attempts to price in the unknown risk and as a result prices decline.
While the news over the past month has led to recent price declines, there are signs of strength. Unemployment continues to be low, and wages are increasing. I suspect the Fed will mention this from their meeting next week. We will continue to monitor that economic data as it is reported to us. As stewards of your capital, we are taking the opportunity of lower prices to rebalance portfolios to gain entry in positions we feel have long term upside potential.