April was a negative surprise precipitated by a confluence of worrisome happenings. Foremost among these were little progress on inflationary measures, issues in the Middle East, and profit taking in in view of the recent run-up in prices and routine summer period fears. Last month, the DOW lost 9%, the S&P lost 4%, and the NASDAQ was 2% lower. For the year to date, the DOW remains up 1%, the S&P is up 4%, and the NASDAQ is elevated 8% over the beginning of the year. We continue to be positive on the remainder of the year, as FED actions and decisions appear to us to be spot-on, well-considered, and very prudent.
Economically, the inflation phenomenon remains central to a return to more normal times,. The sticky part of inflation continues to be services and now insurance, whereas the price of goods and material seems to be moderating. The FED continues to slow the purchases of bonds and shrinking the balance sheet. Job creation continues to be positive, corporate earnings were good once more, and the consumer continues to spend despite a 3.5% increase in the CPI year over year. Kiplinger has revised the unemployment rate for the end of 2024 to down to 4%. All of these metrics continue to reflect a very positive overall trend. It appears that interest rate increases in the near term are not likely, but rates cuts are not likely either. Best consensus guess now is September for the first cut. Time is the most important factor in returning the economy to the desired inflation target levels via a gradual digestion of past changes within the system. Monetary policy is on target, but it is the hangover effect fiscal policy which is a major factor in the “sticky”. Fiscal policy is all about Congress, both now and in the past.
As we enter May, we see another negative month with a late positive pivot going into June.. Of the 22 trading days in May, historically 12 have been positive (55%). Week-wise there is erratic weakness all month, with some strength emerging in week four. The probability for the Dow to be positive is 54%, and the S&P and NASDAQ are both estimated at 60%. Probabilities for the Russell 2000 is 62%. These are longer term average probabilities, which could be overshadowed by exogenous geo-political developments, and other unknown unknowables. These exogenous dynamics remain, in order: Putin, the dynamics of Islamic extremism, and Congress.
Sincerely,
Dwight W. Galda, ChFC, CLU, AEP Principal