April 2022 in Review

Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager

Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager at Midland. I wanted to take a few minutes today to give you an update on the market action in April.

April was not a great month for stocks as we continued to see a risk-off environment as investors continue to be concerned about higher inflation, an aggressive Federal Reserve, China shutdowns, and the Russia/Ukraine conflict.

Investors were caught off guard as 1st quarter GDP surprised to the downside as the U.S. economy shrank at an annual rate of 1.4%, which was short of expectations for a 1% expansion and after posting full-year growth in 2021 of 5.7%. Many economists believe the 1st quarter setback will be temporary, however, it marked the worst quarterly GDP result since the 2nd quarter of 2020 when the pandemic triggered a brief recession. The report did reflect a strong U.S. consumer as real consumer spending grew by 2.7% in the 1st quarter and was the largest contributor to quarter one GDP. Business investment spending was also strong coming in over 8%.

The major indexes were all down for the month of April, with the NASDAQ sustaining the biggest decline at more than 13%, its worst month since October 2008. The S&P 500 was also down nearly 9%, followed by the Dow Jones down almost 5%.

We are currently in the middle of the 1st quarter corporate earnings and so far, over 80% of companies have beat expectations, however, the index is also reporting single-digit earnings growth for the first time since the 4th quarter of 2020, and reported earnings are only 3.4% above analyst estimates, which has averaged 8.9% over the last five years. Typically, beating expectations is good news for the stock market, however, many companies have reported mixed outlooks for the next quarter. Apple reported strong quarterly results, however, gave a cautious outlook as they deal with supply constraints. Amazon shares fell sharply last week, as the company reported their slowest growth rates since 2001 and gave a revenue forecast that was below expectations. The forward 12-month P/E ratio for the S&P 500 is currently around 18x, which is below the five-year average which was 18.6 but above the 10-year average which was 16.9. During the upcoming week, 160 S&P 500 companies are scheduled to report results for the 1st quarter.

All eyes will be on the upcoming Federal Reserve meeting this week on May 3rd and May 4th. Policymakers are widely expected to approve an interest rate increase of a half a percentage point, which is twice as big as the quarter-point increase in March, but the risk is that it could be 75 basis points. Investors will be looking for any insight into future rate hikes.

There is a lot of rerating going on, whether it is the rerating of equity valuations, the rerating of interest rate expectations, or the rerating of inflation expectations. As many unknowns in the economy continue, market volatility is likely to stay until we get more clarity that inflation is peaking and a resolution in the Russia/Ukraine conflict is closer to an end.

We continue to be long-term investors in this market and investors should continue to stick to an appropriate diversified long-term investment strategy. Markets move up and down on a day-to-day basis and taking a long-term approach has led to great success.

If you have any questions or want to speak to one of our portfolio managers, please do not hesitate to reach out to us. Thank you and have a great day.