The major U.S. indexes fell for the fourth week in a row, with the Dow (-2.5%), NASDAQ (-3.9%), and S&P 500 (-3.3%) extending year-to-date losses, and ending a horrific month of April. Value stocks continue to outperform growth stocks year-to-date, as the Dow fell nearly 5% in April, but the growth-oriented NASDAQ index sustaining its largest decline (-13.5%) since the peak of the global financial crisis in October 2008. Taxable bonds and tax-free municipal bonds were no haven, either, as they declined about 0.2% - 0.6% for the week, and a total of about 5% for the month. Thus, investors can expect some sticker shock when they open their monthly statements and see losses ranging from about 4% to 8%, depending on how aggressive they are invested. Note that our clients’ portfolio models have held about 20% cash the past couple months, but we deployed some of that cash last week to buy bonds that do well during inflation, and also purchasing some mega cap value stocks while they are discounted.
Inflation continues to be driving the stocks and bond down, as we are experiencing the highest inflation rate in 40 years. Inflation can put pressure on companies’ earnings, which is bad for stocks, and the Fed’s tool for combatting inflation is raising interest rates, which is bad for bonds. To make matters worse, the markets dropped sharply on Friday, as the first quarter GDP report showed the US economy shrank by 1.4%, which came as a surprise to economists and investors who were expecting a modest rise in GDP. While many economists believe this to be a temporary setback, it marked the first negative GDP since the second quarter of 2020, at the very beginning of the pandemic.
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About the Author: Michael Menninger, CFP®️