April 2022 Market Commentary

Monthly Market Review

By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer

Stocks and bonds struggled in April as inflation and rising interest rates continued to weigh on the markets. U.S. stocks (VTI) fell 9.06% over the course of the month, while international stocks lost 6.86% and emerging market equities (VWO) declined 5.81%. Domestic bonds (BND) dropped 3.95%, while municipal bonds (MUB) lost 2.54%.*

Much of the stock market’s decline could be traced to megacap tech names like Netflix, Amazon, Google and Tesla. The S&P 500, which is heavily weighted toward such companies, declined by 13% in the first four months of 2022. The tech-heavy Nasdaq Composite index was down 22% over the same period. Stock market corrections, defined as broad declines in major indexes of 10% or more, can be alarming, but it’s important to remember that they are quite common, occurring on average about once every two years.¹

Bond performance, meanwhile, has been impacted by persistently higher inflation levels and expectations of significantly higher interest rates. When a bond’s price falls, its yield rises, so in something of a silver lining, the 10-year Treasury bond yield recently hit 3% for the first time since 2018.

Inflation remains a significant headwind for both stocks and bonds. As of March, the Consumer Price Index had risen 8.5% over 12 months, its highest rate since 1981. Interest rates have risen rapidly alongside inflation, with the 10-year Treasury yield jumping half a percentage point in April. It ended the month at 2.88%, up from 1.5% at year-end 2021.

April brought news that the broad economy lost steam in the first quarter, with output of U.S. goods and services shrinking by 1.4%. It was the first quarterly contraction since the pandemic-induced recession two years ago. One silver lining in the gross domestic product (GDP) report was that consumer spending, the economy’s main driver, rose at an annual rate of 2.7%, up a hair from the fourth quarter. In addition, the report showed that businesses continued to invest heavily in equipment and research and development.

Employment continued its rapid recovery in April as payrolls grew by 428,000. The unemployment rate remained steady at 3.6%, and wages rose .3% and are up 5.5% from a year ago.

Against that mixed backdrop, the Federal Reserve remained focused on fighting inflation. It raised short-term interest rates by .25% in April and by another .50% early in May. All told, markets expect the Fed to raise rates by 2.5 percentage points in 2022, bringing the rate to 2.82% by the year’s end.²

Looking ahead, the Atlanta Fed sees economic growth picking up steam in the second quarter: It’s forecasting a GDP increase of 2.2%.

The economy and markets are undergoing a significant shift as they adjust to interest rates last seen three and a half years ago and inflation rates last seen four decades ago. The shift will take time to play out, and further market volatility should be expected. It’s a good time to stay focused on two key requirements for long-term investing success: maintaining a mix of investments that’s appropriate for your goals, risk tolerance and investing time horizon, and keeping a cool head. Don’t hesitate to contact your financial advisor with any questions.

Disclosure 

What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks

Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard

The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.

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