Market Update: April 2024

Welcome to the Monthly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this month.

 

Now I know it’s not 2022 and inflation was supposed to recede by now but here we are in April 2024 and we can’t have nice things.

1. Inflation was expected to continue to fall and level off around 2%. We did not get that. Instead, it leveled off around 3-3.5%.
2. As mentioned in previous videos, it didn’t look like inflation was going to continue to fall and it didn’t.
3. The market typically doesn’t respond well when expectations aren’t met so we have seen an increase in volatility.

My favorite measure of inflation is Sticky-Price CPI.

1. Long time listeners know I track this metric pretty regularly. It measures goods & services that do not typically fall in price once the price has been increased. Thus prices are “sticky.”
2. Sticky CPI is a decent predictor of forward inflation. If Stick CPI is increasing, then total CPI tends to increase as well.
3. While the year/year sticky CPI shown in orange is decreasing, the 1-month and 3-month annualized rates are showing a clear rising trend.
4. Probably doesn’t bode well for the Fed mission of hitting that 2% inflation target.
5. Following the March 2024 inflation reading, Chairman Powell had this to say.

This has ultimately resulted in a reset of Federal Reserve rate cut expectations.

1. Previously, the market was expecting 75 bps of cuts in 2024. That’s 3 total rate cuts from 5.25% to 4.5%.
2. Following the inflation print, that sentiment shifted to 1-2 expected rate cuts of 25 bps each with a growing possibility of 0 rate cuts.

Continued tight monetary conditions from the Fed has forced bond and stock markets to retreat a bit after a strong 6-month rally.

1. I do not think that continued inflation leads to the kind of sell-off we saw in 2022. That sell off was ultimately caused by interest rates rapidly rising from 0% to 5.25%. An equivalent rate increase would effectively move interest rates well above 10%.
2. Still a reset of loose monetary conditions expectations and that is justified.

With that being said, the market is correct in repricing in tighter monetary conditions. Higher for longer if you will.

1. But longer term, I would expect the pullback to be short-lived as we are seeing rising earnings growth for both the S&P 500, shown in green, and the equal weighted index, shown in red.
2. This implies that the economy and the underlying corporations are healthy and driving growth.
3. Long term, the market follows earnings.

Thanks for joining for the monthly market update! We have a new podcast called “Business Tales.” You can find Business Tales on all your favorite podcasting apps. Also, our website is full of economic, financial planning, and market content. For those looking for more information please visit our website at signaturewmg.com. And don’t forget to like and subscribe.

 

Sources:

1.Bureau of Labor Statistics. Consumer Price Index. “12-month percentage change chart, selected categories (past 20 years).” Updated April 10, 2024. Retrieved from https://www.bls.gov/cpi/

2.Federal Reserve Bank of Atlanta. Inflation Project. “Sticky-Price CPI.” Updated April 10, 2024. Retrieved from https://www.atlantafed.org/research/inflationproject/stickyprice.

3.FactSet Research Systems. (n.d.). Policy Rate Tracker (markets). Retrieved April 12, 2024, from FactSet Database.

4.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved April 17, 2024, from FactSet Database.

5.FactSet Research Systems. (n.d.).  S&P 500 & Equal Weight Index (Price & NTM EPS, Interactive Charts). Retrieved April 19, 2024, from FactSet Database.

 

Disclosures:

Signature Wealth Management Group is registered as an investment adviser with the SEC. Signature Wealth only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.

Always consult an attorney or tax professional regarding your specific legal or tax situation.

Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. The use of words such as “will”, “may”, “could”, “should”, and “would”, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein.

The S&P U.S. Style Indices measure the performance of U.S. equities fully or partially categorized as either growth or value stocks, as determined by Style Scores for each security. The Style series is weighted by float-adjusted market capitalization (FMC), and the Pure Style index series is weighted by Style Score subject to the rules described in Index Construction.

All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The Index returns shown do not represent the results of actual trading of investable assets/securities. S&P Dow Jones Indices LLC maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Please refer to the methodology paper for the Index, available at www.spdji.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations.

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.