Developed-market international stocks led markets in April, rising by 2.8% and continuing their strong start to 2023 (MSCI EAFE Index). On the other hand, emerging-market stocks fared poorly, falling by 1.1% on weaker commodity prices (MSCI Emerging Markets Index). Domestic stocks were mixed. Large-caps closed up 1.6%, driven by the health care and financial sectors, but small-caps fell by 2.8%, weighed down by bank stocks (S&P 500 and 600 indexes). Meanwhile, bonds continued their gentle ascent, rising 0.6% for the month (Bloomberg U.S. Aggregate Bond Index). It was a relatively calm month, with large-cap stocks moving by more than plus or minus 1% on three trading days.
Why it happened
There was a lot going on in April that affected markets: news about the economy, jobs and inflation, along with companies reporting their earnings and lingering concerns about regional banks. The economy continues to grow, albeit at a slower rate than markets expected. The jobs market remains solid too, but some measures failed to meet markets’ predictions. Inflation continues to fall, with prices 5% higher than last year, as measured by the Consumer Price Index.
We’re in the middle of earnings season, when companies report how they did in the previous quarter. It’s been a mixed bag. Some big companies, such as Meta, Microsoft and Alphabet, did better than expected. But others didn’t do as well as analysts expected, including Tesla and Eli Lilly.
The Federal Reserve’s task remains difficult: Reduce inflation while minimizing harm to the economy. As predicted, and previously reported, the Fed had raised rates by 0.25% in March, but the meeting notes released in April expressed some concern about the potential implications of banks tightening lending.
Finally, on the first day of May, it was announced that J.P. Morgan had acquired troubled regional bank, First Republic, as part of an effort to contain the fallout from the bank’s collapse. Market reaction on the day was muted but, as we continue to monitor the situation in the banking sector, we’d remind you that the prices of stocks today don’t hinge on what happened in the past – they depend on what investors expect GDP growth, corporate profits, inflation, interest rates, etc., to be in the future. As always, the Investment Management team will be keeping on top of market events, including developments in the banking sector and the ongoing debt ceiling debate.
An index is a portfolio of specific securities (common examples are the S&P 500, Dow Jones Industrial Average, and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
This material was prepared for informational and/or educational purposes only. Although the information has been gathered from sources believed to be reliable, we do not guarantee its accuracy or completeness.