Despite some positive news, the major markets including the Down Jones Industrial Average (Dow), S&P 500 and NASDAQ Composite Index (NASDAQ) all posted losses for the second half of April. In fact, the entire month of April proved to be a rough one for investors.
The list of market concerns remains mostly unchanged. Inflation still dominates the news cycle and there is ample evidence that cost for many goods remains high.
On April 21st, Federal Reserve Chairman Jerome Powell signaled that a 0.5% interest rate hike is the likely outcome of this week’s meeting of the Federal Reserve (Fed.) Markets responded the next day by dropping over 2.5%. The Fed is using interest rate increases to combat inflation. This is an effective strategy, but if rates are raised too quickly, they can cause an economic recession. This aggressive stance by the Fed has markets worried that a recession may be more likely.
The conflict in Ukraine and the international response to Russia’s aggression continues to contribute market uncertainty.
The markets are also worried about the newest wave of COVID-19 in China. Increased lockdown are fueling concerns that this outbreak could impact manufacturing or cause new supply chain problems.
Against this backdrop, bright spots do remain. This quarter’s reports on corporate earnings and revenue are extremely positive. Of the 280 S&P 500 companies who have reported so far, 80% have beat their earnings estimates and 73% beat revenue expectations.1 Consumer spending is strong and actually grew by 2.7% (annually) in the first quarter. Employment numbers look great and wages are growing, albeit modestly.
Wrapping up returns for the second half of the month, the markets were all lower. The Dow fell 1,474 points (4.28%), the S&P 500 dropped by 261 points (5.93%) and the NASDAQ lost 1,016 points (7.61%).
1cnbc.com; “Dow drops 200 points as May trading begins, S&P 500 falls to new low for the year; 5/2/2022