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April Showers:
April extended the patterns of March with robust job growth and modestly higher-than-expected inflation, yet the outcomes for income investors were far less favorable. While March signaled gains, April proved challenging, culminating in widespread losses.
The month began on a positive note with the U.S. Bureau of Labor Statistics (BLS) announcing a substantial addition of 303,000 nonfarm jobs in March, surpassing the anticipated 200,000. This surge dropped the unemployment rate to 3.8%. However, accompanying inflation data from the BLS tempered this good news. The Consumer Price Index (CPI) for March indicated a 0.4% increase, with a year-over-year rise of 3.5%, both figures exceeding expectations by 0.1%. Even the Core CPI, which strips out volatile food and energy costs, nudged past forecasts, adding to the inflationary concerns.
Despite the economic slowdown, most companies in the S&P 500 reported positive first-quarter earnings. Over 75% of these companies exceeded earnings expectations. However, Starbucks was a notable exception, significantly missing on revenue and earnings, hinting at reduced discretionary spending among consumers.
With no immediate relief from interest rates in sight, April saw a broad sell-off. The Core Large Cap Equity category dipped by 4.3%, with technology stocks particularly underperforming. Core Fixed Income assets also declined by 2.4%, driven by inflation-driven interest rate hikes.
Utilities stood out as the sole income-oriented category within the Nasdaq Dorsey Wright Explore portion of HANDLS Indexes to post gains, climbing 1.7% and bringing its year-to-date return to 6.0%. Conversely, REITs faced severe setbacks due to rising rates, plunging 7.6% in April alone, marking them as the poorest performers of the year with a -9.0% return.
The broader indices also reflected this downturn:
- Nasdaq 5HANDL™ Index: -3.1% for April
- Nasdaq 7 HANDL™ Index: -4.2% (1.3x leveraged)
- Nasdaq 10 HANDL™ Index: -6.7% (2.0x leveraged)
April’s market dynamics underscore a challenging landscape for investors, as inflation concerns and interest rate adjustments continue to dictate market movements.
April brought to light fears of stagflation, as the U.S. Department of Commerce reported a first-quarter GDP growth of only 1.6%—well below the projected 2.4%. Additionally, the personal consumption expenditures index (PCE), a key inflation gauge for the Federal Reserve, also reported higher-than-expected figures.
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