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April 20, 2024 Market Update

The stock market fell for a third straight week, marking the longest stretch of losses since September.  At the close of trading on Friday, April 19th, the S&P 500 Index fell a hefty 3.1% for the week.  Despite the recent setback, the S&P is still up a respectable 4.1% for the year.

The bond market also extended its recent decline, although the loss for the week was light, based on Vanguard Total U.S. Bond Market ETF (BND), a proxy for government and investment-grade fixed-income securities.  The fund’s 0.6% slide is the third straight weekly loss, but the smallest so far for weekly declines in 2024.

The yield on 2-year Treasury bills approached 5.0% last week before pulling back to close at 4.97% on Friday – a tick below the highest level of the year, according to Treasury.gov.  The latest increase came after Fed Chair Jerome Powell and other central bank officials hinted that rate cuts might be on hold for longer than previously expected, thanks to stubbornly high inflation numbers.  Powell’s message from the previous Tuesday underscored that getting inflation under control is going to take longer than the market has been forecasting recently.

Most traders now expect just two rate cuts in 2024, way down from the six that many had predicted at the year's start.  Some market watchers have gone as far as predicting the next move will be a rate hike rather than a cut.

Amidst all this uncertainty, the U.S. economy is hanging tough, leaving economists who made gloomy recession calls for 2024 scratching their heads.  Some analysts have gone as far as to suggest that the interest rate hikes over the past two years helped, not hurt, the economy.  The theory is that higher rates lead to increased government interest payments, injecting more money into consumers' pockets and stimulating spending.

Whether that’s an accurate assessment of what’s transpired is unclear.  Regardless, I expect that in a world of elevated interest rates, which raises the burden for government spending, there will eventually be a high price to pay if Washington’s deficits are not brought under control.

That’s all for now.  Have a great weekend and invest wisely my friends.