Key Takeaways
- After a strong Q1 saw the S&P 500 jump over 10%, equity markets retreated in April with U.S. and developed markets posting negative returns while emerging markets achieved only a modest gain.
- Investor enthusiasm faded as Q1 U.S. GDP growth came in at 1.6%, a notable downshift from the 3.4% in Q4 2023.
- Hot inflation data also fueled fears that central banks will not ease monetary policy as quickly as previously hoped.
- Services prices, most notably healthcare and insurance, have started to reaccelerate and shelter costs also remain stubbornly above trend.
- With the Fed being clear that its decision to lower rates will be data dependent and driven by inflation trends, the expected future path of interest rates changed throughout the month and the timing of a potential first rate cut got pushed farther out.
- Accordingly, rate-sensitive equity sectors such as small caps and REITs where punished the most, with the later dropping nearly 6.0%, and fixed income markets suffered as 10-year Treasury yield rose 47bps to 4.7%.
- Emerging markets was a positive outlier within equities, with the index returning ~0.5% driven by a significant rally in Chinese equity markets in the second half of the month.
- Commodities, whose prices have been boosted by an overall resilient economic environment and danger of escalation in the Middle East, were the best performing asset class returning 2.7% for the month.
- Despite these challenges, not all April headlines were negative as consumer spending, the largest component and driver of the U.S. economy, rose 2.5% in Q1 and had a particularly strong March which could indicate momentum into Q2.
- As month end approached, all eyes turned to the Fed’s May 1st meeting where members unanimously voted to hold rates unchanged at 5.25% to 5.50% and calmed market fears by emphasizing that the next policy rate move is unlikely to be a hike.
