April Recap and May Outlook
The latest announcement from the Federal Reserve after their meeting on May 3 had a noticeable change. In their previous statement, they talked about possibly needing to do more things to control inflation. But this time, they didn't mention that. After raising interest rates for a while, it's not surprising that they've decided to stop for now. We don't know for sure if this is just a break or if they'll actually start lowering rates later this year.
The Fed's leader, Jerome Powell, said some things that give us a clue, but we can't be sure. He thinks it's possible to avoid a recession and said that "this time really is different." He also said it's more likely to avoid a recession than to have one. One way to understand this is that Powell might step in if the economy starts slowing down too much to control inflation. Some people compare Powell to Paul Volcker, who aggressively raised rates in the 1980s to control inflation. But earlier in Powell's time as the Fed's leader, he seemed more like Alan Greenspan, who cut rates to boost the economy when it was struggling.
In simpler terms, the Federal Reserve's recent statement didn't talk about needing to do more things to control inflation. We're not sure if this means they're taking a break or planning to lower interest rates. Powell thinks it's possible to avoid a recession, but we don't know how the Fed will respond to what's happening in the economy.
Equity Markets in April
The S&P 500 was up 1.46%
The Dow Jones Industrial Average rose 2.48%
The S&P Mid-Cap 400 decreased 0.87%
The S&P Small-Cap 600 dropped 2.87%
Source: S&P. All performance as of April 30, 2023
All eleven sectors were up, with Communication Services taking the lead with 3.56% for the month. Earnings season for 1Q is largely complete, with 267 issues reporting and 76.8% beating estimates on earnings and 72.5% beating estimates on sales. Q1 2023 is expected to be up 1.4% from Q4 2022.
Bond Markets
The 10-year U.S. Treasury ended the month at a yield of 3.43%, down slightly from 3.48% in March, as investors gained some confidence that the equity markets were looking past the banking crisis. The 30-year U.S. Treasury ended April at almost the same level as March, 3.67%. The Bloomberg U.S. Aggregate Bond Index returned 0.6%. The index continued the trend of positive correlation between the equity and bond markets.
The Smart Investor
Unless you were among those who filed for an extension, tax season is over. What to do with your refund? It’s a good moment to think through ways to tune up your finances and position yourself to lower your tax bill next year.
Good housekeeping chores include:
Pay down high-interest debt
Add your refund to your emergency fund. If your income or your debts have increased, you need a bigger cushion
Put it in a 529 plan for education savings. These accounts can be used for K-12 education costs as well as college
Increase retirement savings
Donate to charity. Being strategic about how you give can mean you have a bigger impact, and a bigger tax savings.
Even if you decide to use the additional funds for something more immediately gratifying, thinking through the options with your long-term plan in mind is a good exercise and may help you make other changes.
---------------------------------------------------------------------------------------------------------------------------------------------
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA
