MARKET UPDATE APRIL 2024

Stocks have been declining for the last three weeks.  The markets needed to take a breather after the big gains posted since November of 2023.  Recent inflation and interest data along with news from the Middle East are weighing on the markets.

Looking at the graph below, we see the strong steady move off the lows reached in October of 2022.  There were a couple of small reversals in early 2023 and a sharp reversal in October of 2023.  Between November of last year and the third week of March this year, the S&P 500 and the Nasdaq (top two lines) have moved sharply higher.  All three major stock indices have pulled back in the last three weeks.

Notice how the Russell 2000 index is still 20% below its all-time high reached at the end of 2021.  Small cap stocks have still not recovered their losses in 2022.

Let’s take a look at bond pricing going back to 2020.  The top or blue line below represents the price of intermediate term bonds and the orange line represents to price of long term bonds. Bond prices started falling in 2021 and fell off a cliff in mid 2022.

Unlike stocks, bonds have not rebounded in 2023 and 2024 because of the continued inflation and interest rate concerns.  In fact, bond prices have been dropping in the last two months due to increases in interest rates. 

I hope you have been paying attention to my ongoing recommendations to avoid bonds and anything other than large cap US index funds for your stock investments.  The previous two charts clearly show the cost of holding small cap stocks and bonds.  Target date fund investors and people who follow the asset allocation strategy that advisors pitch have gotten crushed over the last couple of years by following that bad investment strategy.

Recent inflation data has not been viewed positively by the market.  The market is still expecting rate cuts from the Fed this year, but the inflation rate seems to have stalled out at around 3.5%.  But those rate cuts are now expected to begin later than previously expected.  Economic growth and employment data are still strong, but all eyes will be on inflation going forward.

If the recent price declines turn out to be more than just a temporary setback, Market Signals subscribers will have their saving protected against any worst case scenarios. 

Stay disciplined my Friends,

Phil

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