Stocks broke a five-month winning streak in April as the S&P 500 declined 4.2%, bouncing from an April 18th low of -5.5%. Bonds also declined, with the U.S. Aggregate Bond Index falling about 2.5% as yields rose. The two-year U.S. treasury yield hit 5% for the first time since November, gaining 41 basis points (+0.4%) in April.
The April declines can largely be attributed to persistent inflation data. From the second half of 2022 through late 2023 most broad indices of inflation were falling, providing a tailwind to markets. As you can see in the chart below, so far in 2024, these indices have ceased their declines and even shown an uptick. The CPI, Core CPI (less food & energy), and the PCE rose at annualized rates of about 4.5% in the first quarter, a significant increase from the 0.6%-3.3% increases in the fourth quarter of 2023. While short-term inflation data is noisy and does not prove a new trend, it does present renewed angst for markets that elevated inflation, and therefore elevated interest rates, could last longer than previously thought. The Federal Reserve’s optimistic commentary in the 1st quarter on the outlook for inflation and interest rates may be tempered in the weeks ahead as they follow the data.
April was also a big month for corporate earnings announcements, with some 1st quarter 2024 earnings still to be released in May. As of April 26th, S&P 500 1st quarter revenue and earnings were expected to grow 4.0% and 3.5% respectively, according to FactSet. Nevertheless, the distribution of earnings and revenue growth among sectors and companies is very wide, presenting opportunities and risks to investors. Analysts remain optimistic about corporate profits, expecting the S&P 500’s earnings per share to rise 10% in 2024.
-Jared J. Ruxer, CFA, MS