Stock Market Insights: April Showers Test Investor Resilience

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Photo courtesy Richard Baker

A few days ago, my wife and I took our son on a college visit during a downpour. We overheard one of the moms telling her son not to let the crummy weather affect his decision-making about this university. Rain came by the buckets, but we finished our tour. The April market made investing an unpleasant experience, too.

After a strong first quarter for stocks, some April showers rained on the stock markets parade. The S&P 500 index fell 4.2% in April, its worst performance since September, after having its best first-quarter rate of return in five years. The Nasdaq and Dow were both negative for the month as well, dropping 4.4% and 5%, respectively.

The negativity running in the background is that inflation is still higher than the Federal Reserve prefers, and consumer prices continue to rise more than Wall Street had expected. These trends have clouded the market’s hopes for interest-rate cuts in June. The market has been expecting as many as six rate cuts this year, which now seem unlikely. Analysts are still expecting rate cuts in 2024 but now expect one or two rate cuts later in the year. Inflation will continue to ease later this year as consumer spending slows, but investors will need patience to wait this out.

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While stocks have struggled in April, the latest reports show that the US economy is still growing steadily, increasing the chances of more gains ahead.  The last gross domestic product (GDP) report showed the economy grew 1.6% in the first quarter, and consumer spending rose at a solid 2.5% pace. The economy may slow down later this year, but we’re not there yet.

For those worried about a market crash, the numbers in the corporate earnings report at the halfway point may be encouraging. A solid 80% of S&P 500 companies have beaten earnings estimates so far this quarter. Results from the big technology companies have mostly exceeded high expectations, and maybe most importantly, companies have raised their earnings expectations for the year, showing corporate optimism. I would say, in general, that the earnings season so far has been better than expected and good enough to justify the market strength.

With the economy continuing to grow steadily and corporate profits rising, the outlook for stocks in the near future still looks hopeful. As always, there will be rainy days. Sticky inflation remains a thorn in the market’s side; international wars could be a stumbling block, and there is a US presidential election that no one is excited about. Despite these potential negatives, I see a whole lot more market positives for stocks. For markets, I expect those April showers will bring some flowers in May and potentially the rest of the year.

When preparing for my son’s college tour, we saw the forecast and prepared by bringing umbrellas. Any investor worth their salt saw this market volatility coming and should have made adjustments. There aren’t stock market umbrellas, but defensive measures can be taken. Just like rain is a part of our Spring season, volatility is part of investing. Just before the tour, I asked my son if he still wanted to take it, and he said, “Of course I do; it will be dry when we go inside.” He understood that walking in the rain was only part of the process and not part of the destination. It might be overcast market-wise this year, but it is only part of the process and not the destination.

Have a blessed week!

www.FerventWM.com

Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.

The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.

Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.

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