In April 2024, the stock market experienced a notable decline, ending a five-month winning streak. Here is a detailed summary of the key developments:

Overall Market Performance

The S&P 500 fell by 4.2%, marking its first monthly decline since October 2023[1] [2].
The Dow Jones Industrial Average dropped by 5.0%, experiencing its worst monthly performance since September 2022 [1] [3].
The Nasdaq Composite also saw a significant decline, ending the month down by 4.8%[4].

Sector Performance

Technology: The technology sector was hit hard, with notable declines in major tech stocks. Nvidia's market capitalization decreased by 4.38%, and Microsoft's fell by 8.28%.
Small Cap Stocks: Small cap stocks were particularly affected, with the Russell 2000 Index dropping by 7.04%[5].
Defensive Sectors: Utilities were the only sector to post gains, rising by 1.65%, while Energy and Consumer Staples fell the least among the sectors [4].

Economic Context

Inflation Data: Higher-than-expected inflation data was a significant driver of market sentiment. The core Personal Consumption Expenditures (PCE) index showed persistent inflation, leading to concerns about the Federal Reserve's interest rate policies [5] [2].
Federal Reserve Policy: The Federal Reserve's stance on maintaining high interest rates for an extended period contributed to market volatility. Traders adjusted their expectations, moving away from anticipating multiple rate cuts in 2024 [3] [6].

Market Sentiment

Investor Caution: Investor sentiment turned cautious due to rising inflation and the potential for prolonged high interest rates. This led to a broad-based sell-off across most sectors[7] [8].
Volatility: Market volatility increased, with the Cboe Volatility Index (VIX) reaching levels not seen since October 2023 [2].

Notable Stock Movements

Tesla: Tesla's market capitalization increased by 4.74% in April, bucking the overall market trend.
Apple: Apple saw a marginal increase of 0.18% in its market capitalization.
Earnings Reports: Despite the market downturn, many companies reported better-than-expected earnings. Approximately 76% of S&P 500 companies exceeded consensus forecasts for Q1 2024 [4].

Global Markets

International Performance: Global equities declined by 3.3% in USD terms. The Eurozone and Japan saw declines of 2.9% and 4.9%, respectively, while the UK managed a modest gain of 1.9% [7].
Emerging Markets: Emerging market equities performed relatively better, with a slight positive return of 0.45% [5].

Overall, April 2024 was a challenging month for the stock market, characterized by significant declines across major indices and sectors. Persistent inflation and a cautious Federal Reserve stance on interest rates were key factors driving market sentiment and volatility.

Bond Markets

In April 2024, the bond market faced significant challenges, marked by rising yields and declining prices across various segments. Here is a detailed summary of the key developments:

U.S. Treasury Market

Yields Increase: Treasury yields rose sharply, with the 10-year Treasury yield increasing by 50 basis points, reaching 4.62% by mid-April [12]. The 2-year note approached 5%, driven by stronger-than-expected retail sales data and persistent inflation concerns [9].
Negative Returns: The increase in yields resulted in negative total returns for fixed income investments, as bond prices fell in response to the higher yields[3] [10].

Municipal Bonds

Yield Movements: Municipal bond yields rose by about 28-29 basis points across the curve, maintaining the inversion between 2- to 10-year maturities. The Bloomberg Municipal Bond Index fell by 1.24%, with shorter-maturity bonds outperforming longer-term issues [11].
Issuance and Inflows: Municipal bond issuance reached $39.5 billion in April, 3% higher than the previous month and 18% higher than the same month in 2023. Year-to-date tax-exempt bond issuance was about 25% ahead of the same period in 2023, while taxable municipal bonds saw a significant decline. Municipal funds experienced net outflows of $340 million in April [11].

Corporate Bonds

Investment Grade (IG): The Bloomberg U.S. Corporate Investment Grade Index saw its option-adjusted spread tighten to 87 basis points, indicating a slight improvement in credit conditions. However, fixed-rate corporate bond issuance slowed marginally [11].
High Yield: High-yield bonds continued to attract investors seeking higher returns, despite the overall market volatility. Junk bonds were the top-performing asset class within fixed income for the month [10].

Economic Context

Inflation and Fed Policy: Higher inflation data and strong retail sales figures led to increased expectations that the Federal Reserve would maintain higher interest rates for a longer period, reducing the likelihood of near-term rate cuts [9] [10]. This contributed to the rise in bond yields and the decline in bond prices.
Market Sentiment: Investor sentiment was cautious due to mixed economic data, including positive job and manufacturing sector reports, which suggested that the Federal Reserve would not be cutting interest rates soon [10].

Securitized and Other Bonds

Asset-Backed Securities (ABS): Auto loan and credit card ABS delivered positive excess returns for the month, showing resilience amid broader market challenges [11].
Mortgage-Backed Securities (MBS): Agency Commercial Mortgage-Backed Securities (ACMBS) also earned positive excess returns, benefiting from stable demand [11].

Commentary:

Another month and another shift in the Federal Reserve’s position on rate cuts. Maybe they are finally realizing the Potemkin Village they created by spending so much. But are they really, or are they just throwing out crumbs? From our friends at Hedgeye in their Quarterly Macro Themes presentation at the end of March: “Rates moved from 0 to 5% at the fastest pace ever, leaving little cumulative borrowing in between. For households or small business vulnerable to rates who were viable at 0%-2% but are progressively bleeding out at 5.5% … is 3 cuts really going to make a difference? (they need like 15 cuts!). For that cohort, the bleed is likely to continue."

The theme Higher for Longer continues in the debt, deficit, and inflation. Deficit spending leads to Debt. Printing Money to pay the debt leads to inflation. Inflation leads to loss of buying power. Loss of buying power leads to less economic output (GDP). Headwinds abound. The chart below is really telling.

You don’t need a PhD in Economics to know that the fed is lying to us about inflation. When I lived in Alberta for a number of years, my family and I experienced the long cold dark winters. There was a movie my wife found that summed up the winters in Canada called the Seven Day Forecast that sums up the winters in the Great White North perfectly…it also sums up what the Fed is doing to us regarding rate cuts. If you haven’t watched the Seven Day Forecast, please do so as we all need a laugh. For another laugh:

Conclusion:

The sell off that took place in April appears to be the result of market makers selling off their longer dated option contracts. We don’t see a general entiment change in the overall markets or its trends. Wall Street is still long on the stock market. We are leaning in, but with both hands on the wheel as we see pull back ahead. We have several positions within over portfolios that provide a counterbalance to the general market.

Sat 3 and Sat 5 are both set up to counter a drop in the stock market, if it was to happen. Sat 3 is more of the inflation play, e.g. Gold, Silver, etc. while Sat 5 is a general insurance policy of managed futures.

We are going to have more volatility as we move into the summer months. More and more people are seeing the Potemkin Village that the government has built surrounding inflation and government spending. Remember one of the main reasons that economy grew in 2023 was due to the amount of money the government was spending.

Model Performance Update

Our Moderate model portfolio returned -1.19% during the Month of April and finished the month with a 4.08% return Year to Date (see chart below).

Changes to the model portfolio in April

- Trim BTAL to 2%

- Trim BNDD to 3%

- Trim BND to 4%

- Sell all XHE

- Buy up to 5% PRF

- Initiate JIRE, PIN, and SMIN at .5%

- Buy up to 4% target in AAAU

April 2024 performance with benchmark

April YTD performance with benchmark

If you were to have any questions regarding the above, please reach out to us to set up a one-to-one meeting to review your situation.

Sincerely,

Bryant Andrus, MSF, CFP®

President

SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com

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SBC Investment Management’s Monthly and Quarterly Market Summary and Outlook is intended to communicate current economic and capital market information along with the informed perspectives of our investment professionals. All expressions of opinion are subject to change. Past performance may not be indicative of future results. There is no assurance that any of the trends discussed will continue, or that any of the forecasts will occur.

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[1]https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-500-falls-4-2-in-april-as-market-momentum-loses-steam-81466397

[2] https://www.gia.com/april-2024-market-recap/

[3]https://www.latimes.com/business/story/2024-04-30/stock-market-today-wall-streets-ugly-april-gets-even-worse-as-it-tumbles-across-the-finish-line

[4] https://www.cashdollarandassociates.com/p/april-market-report

[5] https://www.confluencefp.com/stock-market-recap-april-2024/

[6] https://www.cnbc.com/2024/04/29/stock-market-today-live-updates.html

[7] https://www.rothschildandco.com/en/newsroom/insights/2024/05/wealth-management-monthly-market-summary-april-2024

[8] https://rgwealth.com/market-thoughts/market-update-april-2024/

[9] https://www.breckinridge.com/insights/details/may-2024-market-commentary/

[10] https://www.bloomberg.com/news/articles/2024-04-15/treasury-yields-reach-new-2024-highs-after-march-retail-sales

[11] https://www.pathstone.com/market-flash-report-april-2024/

[12] https://www.breckinridge.com/insights/details/april-2024-market-commentary/