Market Commentary – April 2022
April saw rising COVID cases in China prompt the shutdown of some of its biggest cities, causing global supply-chain issues. The ongoing war in Ukraine continues to exacerbate pressure on food and energy prices. While first-quarter earnings data was moderately favorable overall, several major companies reported disappointing results. And inflation continued to rise, leading to an almost certain 50-basis point interest rate increase from the Federal Reserve this week.
All of this led to April being a rather difficult month for Wall Street, capping the worst four-month start to a year in decades. The Dow and the S&P 500 endured the worst monthly returns since March 2020, but they weren't as bad as the Nasdaq, which suffered its biggest drop since October 2008, according to Dow Jones Market Data.
Ten-year Treasury yields climbed 56 basis points to settle at 2.88%. Crude oil prices advanced $3.13 to $104.07 per barrel. Prices at the pump fell in April as the national average retail price for regular gasoline was $4.107 per gallon on April 25 th, down from the March 28 th price of $4.334 per gallon. Gold prices decreased after climbing well above $1,900.00 per ounce in March. The U.S. dollar hit a 20-year high before pulling back, but still posted the best month since January 2015.
As of April
|Monthly Change||YTD Change|
|S & P 500||4,766.18||4,530.41||4,131.93||-8.80%||-13.31%|
|Federal Funds||0.00% – 0.25%||0.25% – 0.50%||0.25% – 0.50%||0 bps||25 bps|
|10-yr Treasury||1.51%||2.32%||2.88%||56 bps||137 bps|
*Chart reflects price changes, not total return
Last Month's Economic News
- Employment: Employment rose by 431,000 in March after 750,000 new jobs were added in February. Notable job gains occurred in leisure and hospitality, professional and business services, retail trade, and manufacturing. The unemployment rate inched down by 0.2 percentage point to 3.6%. The number of unemployed persons decreased 318,000 in March to 6.0 million. These measures are little different from their pre-pandemic values in February 2020 (3.5% and 5.7 million, respectively). Among the unemployed, the number of workers who permanently lost their jobs declined by 191,000 to 1.4 million in March. Also in March, the number of persons who were unable to work because their employer closed or lost business due to the pandemic fell to 2.5 million — down from 4.2 million in the previous month. The labor-force participation rate increased 0.1 percentage point to 62.4% in March. In March, average hourly earnings rose by $0.13 to $31.73. Over the last 12 months, average hourly earnings rose by 5.6%. The average work week fell by 0.1 hour to 34.6 hours in March.
- FOMC/interest rates: The Federal Open Market Committee did not meet in April. However, with inflation sitting above 6.0% for the sixth consecutive month and continuously increasing since December 2020, pressure will be on the Federal Reserve to increase interest rates by at least 50 basis points following its meeting in May. The FOMC increased the federal funds target rate range by 25 basis points to 0.25%-0.50% after its March meeting, the first such increase since December 2018.
- GDP/budget: Gross domestic product fell 1.4% in the first quarter of 2022 compared with a 6.9% advance in the fourth quarter of 2021. While data for this advance estimate of GDP is based on incomplete information, the decrease in GDP primarily reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Consumer spending, as measured by personal consumption expenditures, was 2.7% in the first quarter (2.5% in the previous quarter). Spending on goods rose 4.1%, while spending on services climbed 4.3%. The PCE price index, a measure of inflation, increased 7.0% in the first quarter after advancing 6.4% in the fourth quarter. Nonresidential (business) fixed investment increased 9.2% (2.9% in the fourth quarter), while residential fixed investment increased 2.1% (2.2% in the fourth quarter). Net exports declined 5.9% in the first quarter, with goods exports dropping 9.6% while services rose 3.8%. Imports climbed 17.7% following a 17.9% rise in the fourth quarter.
- The Treasury budget deficit came in at $192.7 billion in March, 12.4% less than the February deficit of $216.6 billion and 71.0% under the March 2021 deficit of $659.6 billion. Through the first six months of fiscal year 2022, the deficit sits at $668.3 billion, 155.0% lower than the deficit over the same period in fiscal year 2021 ($1.71 trillion). So far in this fiscal year, individual income tax receipts have risen 36.0% and corporate income tax receipts have increased 22.0%. Compared to March 2021, government expenditures are down 45.0%, while receipts are up 18.0%.
- Inflation: The Consumer Price Index increased 1.2% in March after climbing 0.8% in the previous month. Increases in the indexes for gasoline, shelter, and food were the largest contributors to the CPI increase. The gasoline index rose 18.3% in March and accounted for over half of the overall March increase. Since March 2021, the CPI has risen 8.5% — the largest increase since the 12-month period ended December 1981.
- Prices that producers receive for goods and services jumped 1.4% in March following a 0.9% increase in February. Producer prices have increased 11.2% since March 2021. Prices less foods, energy, and trade services increased 0.9% in March, the largest increase since rising 1.0% in January 2021. For the year, prices less foods, energy, and trade services moved up 7.0%. In March, prices for goods jumped 2.3%, while prices for services rose 0.9%. A major factor in the March increase in goods prices was a 5.7% increase in energy prices.
- Housing: Sales of existing homes declined for the second consecutive month, falling 2.7% in March after dropping 7.2% in February. Year over year, existing home sales were 4.5% under the March 2021 estimate. According to the latest survey from the National Association of Realtors ®, home shoppers are feeling the effects of rising mortgage rates and higher inflation. The median existing-home price was $375,300 in March, up from $357,300 in February and 15.0% more than March 2021 ($326,300). Unsold inventory of existing homes represents a 2.0-month supply at the current sales pace. Sales of existing single-family homes also fell in March, down 2.7% after dropping 7.0% in February. Since March 2021, sales of existing single-family homes have fallen 3.8%. The median existing single-family home price was $382,000 in March, up from $363,800 in February.
- Sales of new single-family homes fell 8.6% in March after decreasing 2.2% (revised) in February. The median sales price of new single-family houses sold in March was $436,700 ($421,600 in February). The March average sales price was $523,900 ($508,100 in February). The inventory of new single-family homes for sale in March represented a supply of 5.7 months at the current sales pace, up from February's 5.3-month supply. Sales of new single-family homes in March were 12.6% below the March 2021 estimate.
- Durable Goods: New orders rose in March by 0.8% following a 1.7% decrease the month before. Excluding transportation, new orders rose 1.1% in March. Excluding defense, new orders increased 1.2%. While the March advance was widespread, areas of particular note include computers and electronic products (2.6%), electrical equipment, appliances, and components (3.9%), and motor vehicles and parts (5.0%). New orders for nondefense capital goods decreased 0.5% in March, while new orders for defense capital goods slid 5.6% lower. Since March 2021, new orders for durable goods have increased 12.6%.
- International Markets: The Russia-Ukraine crisis shook the globe since the Russian military operation against Ukraine began on Thursday, February 24. Several countries, including Great Britain and Japan, along with the European Union, imposed sanctions against Russia and its leadership. Benchmark indexes in Europe and Asia fell and oil prices surged in the immediate aftermath of Russia's advance into the Ukraine. The FTSE 100 in London fell 2.5%, the German DAX dropped 4.0%, the Nikkei 225 in Japan dipped 1.8%, and the CAC in Paris lost 3.6%. Overall, for the markets in February, the STOXX Europe 600 Index dropped 2.6%; the United Kingdom's FTSE gained 0.3%; Japan's Nikkei 225 Index dipped 1.0%; and China's Shanghai Composite Index climbed 2.7%.
Eye on the Year Ahead
The Federal Open Market Committee meets in May for the first time since March. It is expected that the Committee will follow its most recent 25-basis point rate increase with a rate hike of at least 50 basis points. Many analysts expect the economy and stock market to be impacted by the ongoing Russia-Ukraine conflict and the restrictive monetary policy adopted by the Federal Reserve as it attempts to slow rising inflation.
The information and opinions in this report were prepared by the ANB Financial Services Division of ANB Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent ANB Financial Services opinion as of the date of this article and are for general information purposes only. ANB Financial Services does not undertake to advise you of any change in its opinions or the information contained in this article. Past performance does not indicate future results. The value or income associated may fluctuate. There is always potential for loss, as well as gain. Trust and Investment Services are not insured by the FDIC, Not a deposit or other obligation of, or guaranteed by, the depository institution subject to investment risks, including possible loss of the principal amount invested.