Financial markets have struggled to gain traction since the banking crisis emerged in early March. Despite the headwinds, the S&P 500 finished April in positive territory (+1.60%); the move was largely powered by shares of Big Tech.
Gold remains near its all-time high, jolting above $2,000/ounce in late March. The US Bond Aggregate has retaken all the ground lost in its 4% slide in February, but it spent the month range bound. Its action resembled the general hush witnessed throughout major markets.
The three bank failures this year have alarmed everyone in the investing community. From 2001 to 2022, the FDIC documented 561 bank failures. The significance of this year’s activity is the sheer volume of assets involved. The approximate asset value of all bank failures from ’08 to ’09 totaled $545 billion. After the May 1st seizure of First Republic Bank, this year’s total comes to $550 billion. This will surely be a persistent bugbear for markets in the months ahead. The investment team will be watching closely.
While technology mega-caps drive market gains, your average stock has not recovered from disruptions in the banking sector. Small-caps have fared the worst. These are companies with market values in the range of $250 million to $2 billion. Their smaller size increases their vulnerability to credit spreads and tightened lending standards. The Russell 2000 Index, a common benchmark for small-cap performance, fell twice as hard as the S&P 500 during the banking turmoil and remains stalled out at these reduced levels. These companies are finding it much more difficult to grin and bear it as the Fed Chair declares the worst is behind us.
A sharp pullback in volatility expectations seemed to give the all-clear to bullish investors. For some, it only added to the suspense. The VIX Index (or “Fear Index”) ended April at its lowest level since November 2021.
Whether this means smooth sailing for May or a calm before the storm, no one can predict. Cautious optimism alongside evidence-based decision making will allow us to participate in the market with the FSA Safety Net® as downside protection. All portfolios carry elevated money market allocations while stocks and bonds remain mired in this choppy, sideways pattern.
Advanced estimates for US real GDP growth in the first quarter showed a softer-than-expected expansion of 1.1% (data is annualized and seasonally adjusted). This does not necessarily indicate an imminent recession, but we do face a trend toward slower growth.
Competing narratives abound as the economy shifts into a lower gear. Unemployment figures remain exceptionally low and job growth remains strong despite evidence of mild deceleration. Consumer spending has cooled down but appears on solid footing. We have a dynamic and resilient economy that will continue to endure the meanderings of capital flows and growth cycles down the road.
Please remember to inform your advisor of any changes in your life that might affect your investment objectives and how we manage your money.
Jordan Daugherty, CFA
Investment Analyst
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