After an up and down month, April closed out on a positive note with the S&P 500 positive by 1.6%. Bonds were also positive as the Bloomberg US Aggregate Index was up by 0.61% for the month and is positive by 8.33% since it hit its bottom on October 24^th of last year. We saw strong performance out of developed international stocks as the MSCI EAFE was positive 2.9% for the month and is up by 11.8% year-to-date as the trend of international’s underperformance from the previous several years has reversed over the last 6 months. The tech-heavy Nasdaq closed out the month just slightly positive by 0.07% and is positive 17.12% year-to-date. Communication Services and Consumer Staples led the S&P 500 sectors, as each were positive by over 3.5%. The worst-performing sector year-to-date is financials, which is down 2.6% as the banking crisis continued in April. Last month we pointed out that the S&P 500 was being led by a few of the large mega-cap stocks. Meta (Facebook) was able to continue their positive momentum, mostly driven by their implementation of cost-cutting measures and ended the month positive by another 13.4%. On the other hand, Tesla was down 20.8%, as they reported a large inventory accumulation even after a reduction in prices in an attempt to boost sales.

After an injection of capital, we had assumed First Republic Bank had survived the banking crisis of March and avoided a potential shutdown but at the close of the last trading day in April their stock ended down 97.12% year-to-date and they were still searching for ways to shore up their deposit base as deposits continued to flow out of the troubled bank. After last-minute efforts to find another injection of capital failed, over the weekend the FDIC announced its intention to take over and shut down First Republic. On May 1^st the shutdown was made official, and it was announced that JP Morgan had reached a deal to acquire a majority of First Republic’s assets and deposits.

At first glance, the headline CPI reading seemed like a positive economic indicator as inflation continued its downward trend with the headline number coming in at 5%, which was its lowest level since May of 2021. But when we look at core CPI which takes out volatile food and energy and can often be a better indicator of longer-term trends, core CPI came in at 5.6% which was actually an increase from the previous month. A majority of the drop in headline CPI came from energy commodities which declined by 17% led by a drop in gasoline and fuel prices. If the core CPI number continues its plateau it could signal that the inflation dragon hasn’t been slain by the Fed quite yet.

GDP for Q1 of 2023 was also released this past month and was positive by 1.1% as the economy continues to grow and avoid recession. This is not considered robust growth and it was lower than expected but it is growth nonetheless. Average hourly earnings rose at 4.2% which is the slowest annual pace since June of 2021 but once again the numbers continue to grow even in the face of the Fed’s rate hikes and attempts to slow the economy. Furthermore, the unemployment rate still sits at a very low level of 3.5%. As earnings begin to be reported, there are positives in the reports as 79% of S&P 500 companies that have reported so far have beaten their earnings estimates by an average of 6.8%. And even Meta who reported a loss of $3.99 Billion in the first quarter saw their stock price rise as previously pointed out. Meta’s stock price is up an incredible 99.7% year-to-date. Similarly, Intel posted its largest quarterly loss in their history, yet their stock price is up 19.01% year-to-date after the reported loss was less than experts had predicted and like Meta, Intel has announced cost-cutting and efficiency initiatives.

Even with some positive economic signs, there is another side to the coin. Consumer confidence fell to its lowest mark since July of 2022. As already stated, hourly incomes are growing at a slower rate and GDP growth was less than expected. With another upcoming Fed meeting, they are expected to raise the Fed Funds rate another 0.25% and if core CPI is entrenched the Fed may not be as close to ending their rate hikes as most expect. At the same time, the Fed minutes released show that there is an expectation that their rate hikes will push the economy into a recession later this year. The US is also currently sitting right up against its debt limit of $31.4 trillion and could be headed for a potential default if Congress doesn’t come to an agreement to raise the debt limit by early June.

Early May will give us a lot of information with the Fed meeting and rate hike announcement, a new jobs report, and additional earnings reports including Apple. As markets overall continue their positive trend in 2023 there is still some uneasiness as cracks in the economic armor have begun to show. Will we get the long-predicted recession, or will the economy continue to persevere through the turmoil as it has over the past year? Either way, it is important to have a portfolio that you are comfortable holding in either blue skies or gray.

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