May 5, 2023
The first few weeks of April were slow as equities began the month with less volatility than we were seeing throughout March. However, after the first week, volatility returned. Despite this see-sawing, US markets stayed in the black. Equities as tracked by the S&P 500 Index and the NASDAQ Index closed up 1.56% and .07%, respectively. Gold prices, as tracked by the London Bullion Market Association (LBMA) Gold Price, finished the month 0.14% higher than they opened the month. Fixed income sectors tracked by the Bloomberg US Aggregate Bond Index closed up 0.61%. There were conflicting performances internationally. So, we did not see the staggering performance that we saw in March, but we did see some similar volatility this month.
While volatility was lower in April there was still some notable instability in US equity markets, especially in the month’s final week. The market began a downward trend on Monday, April 24 and by market close on Tuesday, April 25 the S&P 500 Index was down nearly 1.50% from its close the previous Friday and the NASDAQ Index down 2.26%. Then, in a quick turnaround, things began to trend upward on Wednesday, April 26 but the breadth and advance-decline indicators in the market were still trending downward. This could be interpreted as that single day’s price action not being indicative of overall market improvement.
It’s been a few weeks since we’ve seen drastic market changing events like the collapse of both Silicon Valley Bank and Signature Bank. However, April was not without its dramatic moments and we did witness an uprising in Sudan during the week of April 17. This unfortunate event likely influenced international markets and contributed to their negative performance on the month. Four years ago, the people of Sudan had overthrown their dictator and implemented a democracy in their country. However, as we can see by this recent event, the democracy was to no avail and the country is currently facing potential collapse. However, maybe we could have been more expectant of an event like this because this type of ‘backfired revolution' is not uncommon in eastern European nations.
International events like the aforementioned have an influence on the United States and specifically on our markets because the principal market, defined as a highly liquid market with the greatest volume of activity for specific assets and/or liabilities, is globally linked. We can see this effect in past events like the Greek debt crisis in 2011. When Greece brought its government deficit down from roughly 25 billion euros to 5 billion it worsened the recession their nation was already in, and the S&P 500 Index dropped a staggering 18.6% in a matter of days. That drop in return was also influenced by many other factors, but it seems safe to say that the Greek economy was a large contributing factor. Foreign nations’ debt yields, consumer price index, and government and central bank policies are valuable tools for investors and can have significant impacts on US markets.
The Federal Open Market Committee met on Wednesday, May 3 for its third meeting of the year to discuss the current financial condition of the US. Going into the meeting, it was unlikely that the Fed was going to choose to hold or decrease rates. The decision was made to, yet again, raise rates by 25 basis points thus moving its target range for the federal funds rate to 5.00-5.25%.1 Many economists have seen this change coming for a few weeks now. The hope is that the increase in rates will force inflation down and help lift the overall economy. When it is deemed that the inflation rate has slowed sufficiently, the Fed will likely stop raising rates. But so far, inflation has not decreased nearly enough. As we head further into May this increase in rates may have an effect on the overall market and on the market volatility that we’ve recently been witnessing.
Portfolio Management Analyst
Published May 3, 2023; Accessed May 4, 2023
The LBMA Gold Price and LBMA Silver Price are the global benchmark prices for unallocated gold and silver delivered in London.
The Bloomberg U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance stocks of technology companies and growth companies.
The S&P 500 Index is the Standard &Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The federal funds rate is the target interest rate set by the Federal Reserve at which commercial banks borrow and lend their extra reserves to one other overnight.
The Federal Open Market Committee(FOMC) is the monetary policymaking body of the Federal Reserve System.
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