April 2024 Market Commentary

April has seen the market cooling off from what has been a hot start to 2024. The rapid rally since November 2023 has been predicated on the expectation of lower inflation and corresponding rate cuts this year. Q1 2024 brought a 10.5% run in the S&P 500, but April saw the index fall -4.3%, as labour cost data added to fears of a hot economy and sticky inflation urging investors to readjust rate cut expectations ahead of the next FOMC meeting. It was a notably ugly month for the major averages, with the Dow losing 5% for its worst month since September 2022. The Nasdaq lost 4.4% and the TSX was down 2%, breaking a five-month winning streak.

The Labor Department reported that the employment cost index, a measure of wages and benefits, added 1.2% in the first quarter, above the 1% consensus estimate from economists polled by Dow Jones. Treasury yields jumped following the data, with the 2-year yield topping 5%. The data released over the past month has raised questions about whether stubborn inflation was weakening the economy while keeping the Fed in a restrictive mode.

Regardless, at the end of the first quarter we had an inkling that the markets in general had gone a little too far, a little too fast. Keeping in mind our price target forecast for the S&P 500 is 5,100 and the fact that we blew through that in the first quarter is one indication of this. In addition, it is an election year and statistics point to a typical pullback in the markets leading up to the election. We are not surprised by the weakness in April and would suggest there could be more in the months ahead as investors digest the decisions of the central banks. Yet, when all is said and done and earnings season is over, the overall direction for equities is positive as the markets continue to “normalize”.

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