April Economic Update
Market Summary
March was a tale of two halves as stocks moved lower during the first two weeks of the month with rising bond yields, slowing economic growth, elevated inflation, and Ukraine spurring uncertainty. With the lows of February retested and held, the market was able to retrace higher to end the month positively. The S&P 500 Index led the major market components, gaining 3.58%. The Dow Jones Industrial Average added 2.32%, and the Nasdaq Composite rose 3.41%. (1)
Yield Curve & Interest Rates
After the market declines seen in January and February, last month provided a lift off of the recent lows as investors digested the risks at hand. Attention turned to the bond market as the month progressed when the interest rate of the short-term 2-year Treasury note exceeded the interest rates of the 10-year note. Other parts of the Treasury yield curve also inverted, with shorter-term bonds yielding higher interest rates than longer duration bonds. (2,3)
Historically, these types of yield curve inversions have been an early signal that the economy is likely headed towards a recession. While yield curve inversions are not flawless predictors of future economic activity, the inversions have raised concerns and will likely remain top of mind in the months ahead.
The yield curve inversion is in large part due to the Federal Reserve raising interest rates last month - the first increase since December 2018. The Fed has openly stated they intend to continue to raise interest rates through the year as an aggressive policy shift to tame inflationary pressures. As the cost of borrowing money increases, the demand for goods and services will likely fall. While these actions are being taken to quell inflationary pressures, they will also likely cause the rate of economic growth to slow, as indicated with the inversion of the Treasury yield curve.
Interest Rates & Inflation
Amid the tensions in Europe, the markets have also been grappling with inflation which hit a 40-year high in January with consumer prices rising 7.5% year-over-year. To combat these inflationary pressures, the Federal Reserve reaffirmed its plans to raise interest rates beginning in March to slow demand for goods and services. While this may slow down the rate of inflation, it could also hinder the rate of economic growth. (2)
The Beginning of the 2nd Quarter
April kicks off the second quarter with another round of earnings reports which will provide insight into how the economy has weathered rising inflation, the impact of the Ukraine invasion, and how American companies are preparing for rising interest rates this year. The initial estimate for the first quarter’s Gross Domestic Product (GDP) will be released on April 28, and much attention will be directed toward the latest inflation metrics. Investors and asset managers will also be paying close attention to the signals being given in the bond market.
After a rough start to the year, March’s stock market rebound showed much-needed resilience in spite of the short-term adversities at hand. The next 1-2 months will likely play a large role for determining the course of the market’s direction for much of the remainder of this year. As always, we continuously monitor the evolving landscape in the short-term to assist with our investing decisions for the long-term.
Bob Lawson Elected to the Chair Position of the MRFC® Certification Board
Bob Lawson is honored to have been elected to the Chair Position of the Master Registered Financial Consultant (MRFC®) Certification Board. Bob has been involved with the MRFC® organization since 1997, including recently serving as the Vice-Chair and Secretary of the Board. Now as Chair of the Certification Board, he will continue to pursue his passion for educating and mentoring other financial professionals so they can better serve their clients.
Monthly Financial Tip:
Use your phone or camera to take a video of your home and your belongings. Keep it in a safe place. It may come in handy someday.
Citations:
1. WSJ.com, March 31, 2022
2. Treasury.gov, March 31, 2022
3. CNBC.com, March 28, 2022
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
