In this month’s recap: Stocks rallied as the Fed provided greater clarity on monetary policy, and investors became more upbeat about the economic outlook.
Monthly Economic Update
Presented by MidAmerica Financial Resources, April 2022
U.S. Markets
Greater clarity on monetary policy and improved investor sentiment on the economic outlook propelled stocks to their first monthly gain of the year.
The Standard & Poor’s 500 Index led, gaining 3.58 percent. The Dow Jones Industrial Average added 2.32 percent, and the Nasdaq Composite picked up 3.41 percent.1
Rough Start, Strong Rebound
The month started out with the same anxieties that dragged the stock market lower in January and February: rising bond yields, slowing economic growth, elevated inflation, and Ukraine. The escalation of hostilities in Ukraine, along with a continuing stream of Western economic sanctions, heightened concerns over the war’s impact on inflationary pressures and the global economy, sending stocks lower in the early part of March.
Fed Raises Rates
A combination of strong economic data and the announcement by the Fed that it was raising rates by a quarter of a percentage point set the stage for a strong rebound in the second half of the month.
While stocks wobbled immediately following the Federal Open Market Committee’s news, investors subsequently reinterpreted the Fed’s aggressive steps as a serious commitment to taming inflation and a reassuring statement about the current health of the economy to withstand higher interest rates.2
Yield Curve Concern
Investors’ attention turned to the bond market as the month progressed. In early March, the spread between the 2-year and 10-year Treasury yields was 85 basis points. By March 30, that spread had narrowed, and some parts of the bond yield curve had inverted.3,4
Some view a yield curve inversion as a signal that the economy may be headed toward a recession. While yield curve inversions are not flawless predictors of future economic activity, its action was a concern and is likely to remain so in the months ahead.
Sector Scorecard
Every industry sector enjoyed a month of positive performance, with gains in Communications Services (+2.43 percent), Consumer Discretionary (+6.31 percent), Consumer Staples (+1.56 percent), Energy (+9.79 percent), Financials (+1.82 percent), Health Care (+6.45 percent), Industrials (+4.71 percent), Materials (+7.15 percent), Real Estate (+8.41 percent), Technology (+4.71 percent), and Utilities (+9.73 percent).5
What Investors May Be Talking About in April
The initial estimate of the first quarter’s Gross Domestic Product will be released on April 28.
It should provide investors with insight into how the economy weathered the stresses of a wave of Omicron infections early in the first quarter and the repercussions of Russia’s invasion of Ukraine, which started in late February.
At the same time it releases the GDP report, the Bureau of Economic Analysis also will report the Personal Consumption Expenditures Index (PCEI).
The PCEI is one of the benchmarks watched by the Federal Reserve to assess inflationary trends. The Federal Open Market Committee (FOMC) meets in early May so the index may play an oversized role in any decision on interest rates.
T I P O F T H E M O N T H
If you are presently retiring, moving, or divorcing, try tracking your expenses for the next few weeks or months. Significant life changes like these may mean revisions to your budget.
World Markets
Overseas markets rebounded in March, with the MSCI-EAFE Index gaining 1.15 percent.6
Major European markets were mixed, with losses in Italy (-1.55 percent), Spain (-0.40 percent) and Germany (-0.32 percent). The U.K. picked up 0.77 percent and France edged higher.7
Stocks in the Pacific Rim markets were led by a surge in Australia (+6.39 percent). China’s Hang Seng index lost 3.15 percent while Japan’s Nikkei added 4.88 percent.8
Indicators
Gross Domestic Product: The final read of fourth-quarter GDP annualized growth rate was 6.9 percent, revised down slightly from its previous estimate of 7.0 percent.9
Employment: Employers added 678,000 jobs in February. The unemployment rate dipped to 3.8 percent, while workers’ wages rose 5.1 percent from a year ago. The labor force participation rate ticked up to 62.3 percent from 62.2 percent.10
Retail Sales: Retail sales rose 0.3 percent, a deceleration from January’s increase of 4.9 percent.11
Industrial Production: Output from the nation’s factories, mines, and utilities increased by 0.5 percent, led by gains in the manufacturing sector.12
Housing: Housing starts rose 6.8 percent from January levels and were 22.0 percent higher versus February 2021.13
Existing home sales fell 7.2 percent as mortgage rates rose, and the median sales price jumped 15 percent from February 2021.14
New home sales slipped 2.0 percent from January’s and came in 6.2 percent lower year-over-year.15
Consumer Price Index: Consumer prices rose 0.8 percent in February, pushing the year-over-year inflation rate to 7.9 percent, the highest level since January 1982. Excluding the more volatile food and energy prices, the 12-month increase was 6.4 percent, up from 6.0 percent a month earlier.16
Durable Goods Orders: Orders of goods designed to last three years or longer were down 2.2 percent from a month earlier.17
Q U O T E O F T H E M O N T H
“If a window of opportunity appears, don’t pull down the shade.”
TOM PETERS
The Fed
The Federal Reserve raised interest rates by 0.25 percent, with the Federal Open Market Committee (FOMC) signaling that it may increase interest rates at a faster pace than it originally anticipated in December.
Based on its projections of the federal funds rate, the Fed may implement as many as seven quarter-point hikes this year and another three to four next year. The FOMC also indicated that it would soon announce its strategy for reducing the Fed’s $9 trillion balance sheet.18
| MARKET INDEX | Y-T-D CHANGE | April 2022 |
| DJIA | -4.57% | 2.32% |
| NASDAQ | -9.10% | 3.41% |
| S&P 500 | -4.95% | 3.58% |
| BOND YIELD | Y-T-D | April 2022 |
| 10 YR TREASURY | 0.82% | 2.33% |
Sources: Yahoo Finance, March 31, 2022.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
T H E M O N T H L Y R I D D L E
1987, 1993, 1997, 1999. These are not only years on the calendar but also prime numbers. After 1999, what was the next year that was also a prime number?
LAST MONTH’S RIDDLE: You walk into a restaurant and the wood beneath your feet is neither straight nor smooth – even though the manager tells you the wood was just laid down the night before. The pieces are uneven, yet no one trips or falls. What kind of wood is on the floor of this restaurant?
ANSWER: Sawdust.
MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us
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MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
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 market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.
MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS:
- WSJ.com, March 31, 2022
- WSJ.com, March 17, 2022
- Treasury.gov, March 31, 2022
- CNBC.com, March 28, 2022
- SectorSpdr.com, March 31, 2022
- MSCI.com, March 31, 2022
- MSCI.com, March 31, 2022
- MSCI.com, March 31, 2022
- BEA.gov, March 30, 2022
- WSJ.com, March 4, 2022
- CNBC.com, March 16, 2022
- Morningstar.com, March 17, 2022
- MarketWatch.com, March 17, 2022
- CNBC.com, March 18, 2022
- Census.gov, March 23, 2022
- WSJ.com, March 10, 2022
- Morningstar.com, March 24, 2022
- WSJ.com, March 17, 2022
