Hopefully the April showers will bring May flowers. Almost every class underperformed in April. Both stock and bond markets were under significant pressure. The prolonged war in the Ukraine, weaker corporate earnings combined with close to double digit inflation prints all weighed heavily on the market.

The Nasdaq 100 was down 13.37% in April and it now down over 21% year to date. The S&P 500 was down 8.80% and the Dow Jones Index was down 4.91% in April bringing their year to date returns down 13.31% and 9.25% respectively.
As inflation continues to grind higher the market is pricing in much more aggressive rate hikes by the Federal Reserve. As an example, currently overnight Federal Funds which is a rate the Federal Reserve charges banks for overnight loans sits at .375%. At the end of March that rate was projected to be 2.605%. By the end of April that rate forecast skyrocketed to 3.13%.

Higher interest rates tend to have a greater impact on more levered companies most notably the technology, media, and telecom sectors. This accounts for the large performance deviation between the Russell 1000 value and the Nasdaq 100
Higher rates also weighed on fixed rate bonds funds. Vanguard’s long term corporate bond fund was down 9.51% in April and down 19% year to date.

Rarely do we have such radical consistent downward move in both bonds and stocks. Most of the asset management industry has some 60/40 allocation. 60/40 simply means 60% invested in stock portfolio and 40% in a bond portfolio for stable income. As rates rise bond prices drop in value. 60/40 allocation funds are down 10%-15% this year steering some people away from this investment philosophy. We still feel an allocation toward some fixed rate asset is essential. Corporate bond yields are at levels we haven’t seen in almost 10 years.

Housing continues and US Home prices continue to climb higher. The price of homes grew at a record pace of 20% from February 2021 to February 2022. This reading was reported this month. The imbalance between an insufficient number of owners looking to sell relative to buyers accounted for record appreciation levels. The chart below highlights year on year price changes from Case Shiller. This tracks the value of single-family housing within the Unites States.

As mortgage rates climb above 5%, we are keeping out eye on to see if demand cools down. To illustrate a $500,000 30-year mortgage at 3.00% equates to a $2108 monthly payment. That same loan at 5.50% ratches the payment up to $2839.

As we mentioned in our previous newsletters, short term volatility has little impact on long term investment results. A well-diversified balance portfolio is a time-tested strategy for long term capital. This market volatility is common. The VIX Index averaged 24.37 in April. It average 26.97 in March and 25.75 in February.

As always please reach out if you have any questions.

Best regards,
Bob

This material is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. The S&P 500 Index is a market index generally considered representative of the stock market. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Equities may decline in value due to both real and perceived general market, economic and industry conditions Opinions expressed are those of the author and not necessarily those of Guardian or PAS. 2022-137623

Statistics sources from Central Bank Rates and Bloomberg