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.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.