April 2024 Market Insights
BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS
After hitting an all-time high in March, the S&P 500 stock index proceeded to pull back over 5% in the first three weeks of April. As we mentioned before, 5% pullbacks happen in most years. Inflation reports were a bit higher than expected, as was the price of oil, which pushed expectations for Fed rate cuts further down the road. This led to higher bond yields, which cooled stock prices. Still, much of the economic data remains favorable; let us not miss the forest for the trees.
Stocks:
The S&P 500 closed at 5,254 at the end of March. As of this writing, the S&P 500 is about 3% below that high. The media seems to bring much more attention to sell-offs, but percentage changes should be the focus instead of index points. On October 19th, 1987, the Dow Jones Industrial Average fell 508 points, which was a 22.6% drop. On April 4th this year, the Dow fell 530 points, which was only a 1.4% decline. Daily moves under 3% are not that extraordinary. As many companies have reported their first quarter results, growth this quarter, and even greater growth next quarter, is expected. Earnings growth will help support stock prices, which are also influenced by sentiment shifts, among many other factors.
Economy:
Inflation remains higher than the Fed’s ideal rate of 2%. There have been three straight months of 2.8% core consumer inflation (PCE) readings. Oil recently touched $87, compared to a brief spike this time last year that took oil to $83. On the brighter side, the Conference Board Leading Economic Index (LEI) was positive for the first time in 2 years and the ISM Manufacturing broke a 16-month contraction streak. This shift to manufacturing growth has often signaled that a recession was far off, typically at least 2 years away. The recent monthly jobs report was stronger than expected, with the unemployment rate improving slightly to 3.8%.
Federal Reserve:
If the economy and corporate earnings continue to grow, steady Fed Funds rates could be just fine. Being slow to cut rates is better than needing to move in response to a problem. Most economists feel that the U.S. economy will experience a “soft landing”, where inflation will get back to 2% without a recession instead of a “hard landing”, or recession that takes inflation back down quickly. In recent months, some attention has shifted to a “no landing” scenario, but what does that mean? It is another way of saying growth is expected, with inflation that is above the Fed’s target, but also where inflation is modest enough to not warrant additional Fed hikes.
What does it mean to have a strong dollar or weak dollar?
To put it into personal terms, a stronger dollar means it is cheaper for you to travel abroad and buy things; your stronger dollar buys more international goods/services. A U.S. company that imports goods and sells them in the U.S., all else equal, prefers a strong dollar. International businesses’ results, when reported back into U.S. dollars, are weaker than they would have been otherwise in a strong dollar environment. A strong dollar, all else equal, makes commodity prices, like oil and gold, lower. Dollar strength and weakness has gone through many streaks and cycles; notably in the past 20 years the dollar weakened from 2002-2008, while there were periods of dollar strength in 2014 and 2021-2022. As a net importer economy, investors should generally prefer a slightly strengthening dollar.
Bitcoin Halving:
Recently, Bitcoin’s reward for mining experienced a “halving”, which was the fourth in its history. The block reward for mining decreased from 6.25 BTC to 3.175. The reward started at 50, went to 25 in 2012, went to 12.5 in 2016, and went to 6.25 in 2020. To put it another way, the difficulty has doubled for the fourth time. This growth, which happens about every 4 years, is exponential, not linear.
Buckingham is here for you:
Buckingham Advisors continues to welcome new households and small businesses to our Family of Clients! Thank you to our clients for your referrals and continued support. Our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please send this issue on to others. To get in touch directly, please use the following link: https://mybuckingham.com/contact.
Thank you for your continued trust and referrals.
Ryan P. Johnson, CFA, CFP®
Managing Director of Investments
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RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.