Weekly Market Update

The S&P 500 rebounded over 3.5% in March, but still declined almost 5% for the quarter as stocks snapped a seven-quarter streak of positive returns. However, bonds also struggled with the Barclays US Aggregate Bond index registering its worst quarterly return since 1980, falling roughly 6% as interest rates surged on concerns of the Federal Reserve tightening monetary conditions. As a result, there were exceedingly few places for investors to hide and only the energy and utilities sectors, which make up just 5.5% of the S&P 500, finished the first quarter positive. Fortunately, April is historically a very strong month and has seen the S&P 500 rise 15 of the past 16 years for a median return of 1.6% (per LPL Financial). Despite, strong seasonality, however, interest rates will continue to dominate investor attentions and this week saw the yield on the 2-year US Treasury (2.45%) surpass the yield on the 10-year US Treasury (2.37%), an uncommon event as long-term rates are generally higher than their short-term peers. Such a phenomenon is known as a yield curve inversion and particularly noteworthy as they have historically been fairly dependable indicators of approaching recession with the last one occurring in August 2019. However, it is very important to note that while investors have certainly been put on notice for increased odds of a weakening economy, since 1976 there have been seven yield curve inversions and the S&P 500 on average was 13% higher a year later (per Bespoke Investment Group). Furthermore, Friday’s jobs report was quite solid with March payrolls rising 431K and the unemployment rate falling to 3.6%, the lowest since the pandemic. Next week markets will get the FOMC minutes from the March meeting, but the economic data really heats up in mid-April with the Q1 S&P 500 earnings season unofficially kicking off and the release of a much anticipated consumer price index (CPI) for March.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder