Market Snapshot
By the Numbers
- The S&P 500 and Nasdaq gained 10.4% and 15.3% for the month, both ending at new all-time highs, while the Dow Jones Industrial Average rose 7.1%.
- International developed markets returned 7.0% based on the MSCI EAFE Index in U.S. dollar terms, while emerging markets returned 14.5% based on the MSCI EM Index.
- U.S. small cap stocks jumped 12.2% based on the Russell 2000 and mid-cap stocks gained 7.8% based on the S&P MidCap 400.
- The 10-year Treasury yield ended the month with little change at 4.37%. The Bloomberg U.S. Aggregate Bond Index was flat with only a 0.1% increase during the month.
- Brent crude oil ended April at $114 per barrel, with swings from as low as $92 to as high as $121. WTI closed the month at $105, as the Strait of Hormuz remained closed to shipping.
Whiplash
April’s performance is a reminder that markets can experience strong rebounds even in the face of ongoing investor concerns. Despite the continuing war in the Middle East, major market indices climbed to new all-time highs during the month. The S&P 500 gained 10.4% in April alone, one of its strongest monthly performances in history. On the surface, this echoes last year’s tariff-driven volatility and market rebound.
Of course, this does not necessarily mean the market will experience a smooth ride from here. Geopolitical uncertainty, a leadership transition at the Federal Reserve, and higher energy prices will likely generate headlines in the months ahead.
The Federal Reserve’s final session under Jerome Powell
The Federal Reserve held its key policy rate steady at its April meeting. While this decision was widely anticipated, there was significant disagreement within the committee as four of the twelve voting members dissented, the most since 1992.
The divide reflects a leadership change and two economic challenges that the Fed is navigating. When it comes to the economy, the labor market has been showing signs of softening, with job openings falling below the number of unemployed workers for the first time in years. When it comes to inflation, however, the ongoing conflict in Iran and continued disruption around the Strait of Hormuz have pushed oil prices even higher, affecting gasoline prices and inflation.
Supporting the job market would normally result in rate cuts, while fighting inflation would call for rate hikes. As a result, market expectations for the next Fed move have shifted to reflect roughly even odds between a rate cut and a rate hike later this year.
Oil prices and the Strait of Hormuz
Brent crude and WTI prices climbed back toward recent highs in April as the Strait of Hormuz remained effectively closed to oil shipping. There were a number of false starts over the past month regarding ceasefires and peace deal negotiations, which whipsawed markets.
The more significant concern for investors is whether energy costs will begin to spread to other parts of the economy. This “second-order effect” would occur if oil and gasoline prices remain high for an extended period, increasing transportation and energy input costs for businesses that are then passed onto consumers via higher prices for goods and services.
That said, it is worth maintaining some perspective. The history of oil shocks suggests that inflation effects can fade once the underlying situation stabilizes. Also, it is worth noting that the U.S. remains the world’s largest producer of oil and natural gas, which provides some insulation from global supply disruptions compared to prior decades.
The stock market rebound
When combined with negative returns in the first quarter, the S&P 500 is now up 5.3% year-to-date. The accompanying chart shows the distribution of annual S&P 500 returns over history. Since 1928, the market has been positive in roughly two-thirds of years, which means that while negative years are common and not unexpected, there are far more years with gains over longer time horizons. Since 1980, the percentage of positive years is even higher, at about three-quarters.
Chart of the Month
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Data sources: Clearnomics, YCharts, The Wall Street Journal, Charles Schwab Asset Management, JPMorgan, Bloomberg, U.S. Energy Information Administration, U.S. Bureau of Statistics, The Economist, Congressional Budget Office, US Treasury Department, & US Federal Reserve.