April 2023 - Market Update

Data Dashboard

Stock Market

In April, the S&P 500 continued its upward trend, finishing the month up 1.56%. The Consumer Staples sector continued to lead with a return of 3.65%, followed by Communication Services (3.33%) and Financials (3.17%). Large-cap stocks outperformed small and mid-cap stocks again, reflecting investors' preference for safety in uncertain times.

We have seen an optimistic comeback in the financial sector, after the fall-through of the SVB and Signature Bank collapse the previous month. Meta’s almost 20% surge contributed a lot to the Communication Services increased It is also important to note that the developed international and emerging stock market indexes are near their 52-week high.

April Monthly Returns (by US Sector)

Bond Market

US Treasury yields were less volatile in April, with inflation expectations decreasing. The 2-year US Treasury Note rose from 3.76% to 4.06%, while the 10-year US Treasury Bond increased from 3.28% to 3.51%. This continued inversion in the yield curve is consistent with the view that the Fed will ultimately pull back on rates in the coming years, making the terminal rate lower that previously expected.

In the credit markets, high-yield bonds showed some resilience despite the increase in Treasury yields. The spread between high-yield bonds and Treasuries narrowed slightly. This indicates that credit markets remain relatively healthy and that investors are not yet overly concerned about default risk.

In its statement following its April meeting, the Fed removed the word "patient" from its language, indicating that it might be ready to raise interest rates sooner than previously expected.

However, the Fed also emphasized that its policy decisions will be data-dependent and that it will continue to monitor economic indicators closely. This suggests that the Fed is taking a measured approach to monetary policy and is not planning to raise rates aggressively from this point.

Economics

The US economy continued to show signs of slowing down in April. Gross Domestic Product (GDP) growth for Q1 2023 came in at 1.1%, lower than the 2.6% growth rate in Q4 2022. This disappointing number was driven by weaker-than-expected consumer spending and business investment. However, some analysts noted that the data may be somewhat distorted by supply chain disruptions and other pandemic-related factors.

Inflation remained a concern in April, with the Consumer Price Index (CPI) increasing by 0.1% for the month and 5% from a year ago. This is well above the Federal Reserve's target of 2%. The Fed has indicated that it believes the recent surge in inflation is transitory (yes, that work survives) and will eventually subside, but some investors remain skeptical.

Finally, the housing market remained stable in April, with home prices continuing to rise at a steady pace. The S&P CoreLogic Case-Shiller Home Price Index increased by 0.2% in February and 2% year-over-year. While high mortgage rates continue to be a headwind for the housing market, demand remains strong due to a combination of low inventory and demographic trends.

Tactical Updates

The Global Tactical ETF portfolio moved into commodities such as gold and silver. In the Tactical Stock portfolio, we got more exposure to the Consumer Staples sector, taking advantage of its positive performance over the month.

In the Low Volatility Tactical models, we shifted some of the focus from money market and developed international to US treasuries and emerging market fixed income. Our approach in the low-vol models is to shift between credit and duration without subjecting our clients to unnecessary drawdown risk.

General Client Considerations

Below is a table showing the change in contribution limits for 2023:

As we downshift from the holiday season, many of you likely have a list of To Do’s for 2023 including doctor’s appointments and organizational tasks. We suggest you add financial checkup to the list and encourage you to setup some time with us to review your financial plan. We look forward to hearing from you!

Thanks,

The Friedenthal Financial Team

‍