A Bumpy April for Stocks and Bonds

Spring has sprung and it’s hard to believe summer is fast approaching!

April’s stock market was all over the board, as investors weathered the fallout from an interest rate hike and ongoing disruptions in the food and energy sectors caused in part by the Russia-Ukraine war. It was an eventful month for two notable tech companies, as Twitter accepted billionaire Elon Musk’s offer to buy the company, while Netflix shares dropped after announcing disappointing subscriber growth.

Elon Musk agrees to buy Twitter. The social media platform’s board of directors initially bristled at Musk’s takeover bid before changing their minds and accepting the tech titan’s $44 billion offer. Musk, whose frequent tweets are followed by nearly 84 million Twitter users, plans to take the company private. Critics complain that Musk’s less restrictive view on content moderation will open the door to toxic contributors, sending users running for the exits and potentially endangering advertising revenue. Proponents of the deal cite Musk’s track record of challenging conventions to improve products, an approach they feel will help Twitter remain competitive.

Netflix stock price crashes -35% in a day. Traders punished the streaming giant after the company announced the loss of 636,000 subscribers in the United States and Canada last quarter (global subscriptions were down 203,000 for the quarter). The drop represents about a -1% fall in global subscriber figures, quarter-over-quarter. Netflix also announced plans to crack down on password sharing and add a new advertising-based subscription tier in the next year or two. 

Crude oil prices moderate. After spiking to nearly $125/barrel, oil prices (as measured by WTI Crude) have slipped below $100/barrel as of this writing. Gas prices have followed suit, retreating from previous highs to around $4/gallon nationally. It’s too soon to tell if this recent pullback indicates a return toward gas’s 52-week average price of $3.35/gallon. Fingers crossed!

Kickoff to next season. Georgia’s Travon Walker was the first overall pick in the annual National Football League (NFL) Draft, held in Las Vegas this year. While first-round picks generate the most buzz, the real focus should be on players selected in the middle of the second round - at least according to Richard Thaler, who won a Nobel Prize for his work in behavioral economics. Read his blog about the intersection of game theory and player selection in the NFL Draft.

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Stocks

All three indexes stumbled in April, as the anticipated interest rate hike and geopolitical concerns weighed down markets. The tech-heavy NASDAQ 100 fell more than 13% in April alone, and is down 21% since January.

Sector Performance

While moderating oil prices deflated Energy stocks by about 1.5% for the month, the sector still leads year-to-date, clocking in up nearly 40% so far. Consumer Staples – containing stocks like Procter & Gamble, Coca-Cola, and Costco – was the lone sector with positive returns in April and one of three sectors up year-to-date.

Bonds

Bonds face headwinds for the foreseeable future, as inflation and the Federal Reserve’s aggressive interest rate policy take center stage. April’s negative performance simply added to an already-challenging year for bonds.

Economic Update

US economy remains strong. The economy continues to show signs of strength in key areas:

• The unemployment rate is expected to improve from 3.6% down to 3.5% when figures are released Friday, May 6^th.  
• New jobs are expected to be robust at 393,000 when the ADP employment report files on Wednesday, May 4^th. While a good number, it is lower from last month’s 455,000 new jobs, potentially indicating some softening in the job market.
• Durable goods were up 0.8% year-over-year, a sign that supply chain conditions are improving. Durable goods are expensive items that last three years or longer, things like industrial machinery, raw steel, or airplanes.

US GDP Drops Q1 2022

The US economy contracted by 1.4% through Q1 2022, its first contraction since the early month of the COVID-19 pandemic, as measured by Gross Domestic Product (GDP). GDP is made up of four big components: consumption by households, investment by businesses, government spending on goods and services, and net exports.

According to Barrons, the surge in imports and trade deficit was the biggest factor behind the GDP drop, as Americans began buying more goods from overseas markets, followed by a reduction in government spending. That could be a sign that the U.S. economy has recovered more rapidly than others around the world, not necessarily a harbinger of future economic distress.

Read more at Barrons.  

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THOUGHT FOR THE MONTH

^{Index Definitions}

^{Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.}

^{Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.}

^{NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.} 

^{S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.}

^{S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.}

^{S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.}

^{S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.}

^{S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.}

^{S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.}

^{S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.}

^{S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.}

^{S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.}

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