A Bumpy April for Stocks and Bonds

A Bumpy April for Stocks and Bonds

May 12, 2022
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Spring has sprung and it’s hard to believe summer is fast approaching!

April’s stock market was all over the board, as investors weathered the fallout from an interest rate hike and ongoing disruptions in the food and energy sectors caused in part by the Russia-Ukraine war. It was an eventful month for two notable tech companies, as Twitter accepted billionaire Elon Musk’s offer to buy the company, while Netflix shares dropped after announcing disappointing subscriber growth.

Elon Musk agrees to buy Twitter. The social media platform’s board of directors initially bristled at Musk’s takeover bid before changing their minds and accepting the tech titan’s $44 billion offer. Musk, whose frequent tweets are followed by nearly 84 million Twitter users, plans to take the company private. Critics complain that Musk’s less restrictive view on content moderation will open the door to toxic contributors, sending users running for the exits and potentially endangering advertising revenue. Proponents of the deal cite Musk’s track record of challenging conventions to improve products, an approach they feel will help Twitter remain competitive.

Netflix stock price crashes -35% in a day. Traders punished the streaming giant after the company announced the loss of 636,000 subscribers in the United States and Canada last quarter (global subscriptions were down 203,000 for the quarter). The drop represents about a -1% fall in global subscriber figures, quarter-over-quarter. Netflix also announced plans to crack down on password sharing and add a new advertising-based subscription tier in the next year or two. 

Crude oil prices moderate. After spiking to nearly $125/barrel, oil prices (as measured by WTI Crude) have slipped below $100/barrel as of this writing. Gas prices have followed suit, retreating from previous highs to around $4/gallon nationally. It’s too soon to tell if this recent pullback indicates a return toward gas’s 52-week average price of $3.35/gallon. Fingers crossed!

Kickoff to next season. Georgia’s Travon Walker was the first overall pick in the annual National Football League (NFL) Draft, held in Las Vegas this year. While first-round picks generate the most buzz, the real focus should be on players selected in the middle of the second round - at least according to Richard Thaler, who won a Nobel Prize for his work in behavioral economics. Read his blog about the intersection of game theory and player selection in the NFL Draft.

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Stocks

All three indexes stumbled in April, as the anticipated interest rate hike and geopolitical concerns weighed down markets. The tech-heavy NASDAQ 100 fell more than 13% in April alone, and is down 21% since January.

Sector Performance

While moderating oil prices deflated Energy stocks by about 1.5% for the month, the sector still leads year-to-date, clocking in up nearly 40% so far. Consumer Staples – containing stocks like Procter & Gamble, Coca-Cola, and Costco – was the lone sector with positive returns in April and one of three sectors up year-to-date.

Bonds

Bonds face headwinds for the foreseeable future, as inflation and the Federal Reserve’s aggressive interest rate policy take center stage. April’s negative performance simply added to an already-challenging year for bonds.

Economic Update

US economy remains strong. The economy continues to show signs of strength in key areas:

  • The unemployment rate is expected to improve from 3.6% down to 3.5% when figures are released Friday, May 6th.  
  • New jobs are expected to be robust at 393,000 when the ADP employment report files on Wednesday, May 4th. While a good number, it is lower from last month’s 455,000 new jobs, potentially indicating some softening in the job market.
  • Durable goods were up 0.8% year-over-year, a sign that supply chain conditions are improving. Durable goods are expensive items that last three years or longer, things like industrial machinery, raw steel, or airplanes.

US GDP Drops Q1 2022

The US economy contracted by 1.4% through Q1 2022, its first contraction since the early month of the COVID-19 pandemic, as measured by Gross Domestic Product (GDP). GDP is made up of four big components: consumption by households, investment by businesses, government spending on goods and services, and net exports.

According to Barrons, the surge in imports and trade deficit was the biggest factor behind the GDP drop, as Americans began buying more goods from overseas markets, followed by a reduction in government spending. That could be a sign that the U.S. economy has recovered more rapidly than others around the world, not necessarily a harbinger of future economic distress.

Read more at Barrons.  

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