The S&P 500 had a total return of -4.1% for the month of April. This was its worst monthly return since September last year and is being driven by interest rate movements that have turned higher, once again.
10-Year Treasury Yield Increases to 4.6%.
Source: Bloomberg
Investors are now weighing the risk/reward scenarios from “risk-free” Treasury bonds that are yielding 4.6% against the risk/rewards scenarios in the stock market, that has had outsized returns over the past year setting up a potential correction.
The only market sector that was up last month was Utilities, as it is less correlated with the overall market than any other sector. Real Estate saw the biggest decline last month as they dropped 8.5% within the S&P 500 index. Real Estate investors are concerned that mortgage rates will stay higher for longer as the Federal Reserve holds their benchmark interest rate steady. Earlier in the year, there were market expectations that the Federal Reserve would cut interest rates three times this year. This expectation has changed as Federal Reserve Chairman Jerome Powell has given no signs of an interest rate cut saying “there has been a lack of further progress toward the 2 percent inflation objective.”
US Consumer Price Index at 3.5%
Source: Bureau of Labor Statistics
Although inflation has dropped well below its 2022 highs, it is still above its historical norm. With sticky inflation and higher interest rates, the equity market is subject to corrections as we witnessed last month.
