Client Letter | April Showers Bring May Flowers | May 4, 2022

Dear Valued Investor,

As we move into spring and leave behind the last signs of a long winter, many worries from a chilly start to the year for markets, unfortunately, are still with us. The S&P 500 Index had its worst April in more than 40 years, leaving the index down over 13% for the year. Previously highflying stocks have come back to earth, with many of them cut in half or more. And bonds, which have historically provided support during times of stock market volatility, have done little to protect portfolios.

The concerns that have contributed to the poor start are well-known. Historically high inflation, supply chains disruptions, China in another lockdown, geopolitical concerns, an aggressive Federal Reserve Bank (Fed) rate hiking campaign, and soaring yields have all contributed to the worries. Not to mention economic growth worries are spreading after the 1.4% decline in gross domestic product (GDP) during the first quarter.

Just as April’s dark storm clouds are often chased away by a brighter May, we remain optimistic that more sunshine could be coming. Yes, the GDP report showed an economy that contracted in the first quarter, but that was mainly due to drags on inventory and trade, while more important parts of the economy like consumer spending, housing, and private sector investment all accelerated compared to the fourth quarter. Additionally, 2011 and 2014 both saw negative first quarter GDP prints, followed by big rebounds in the second quarter to avoid recessions. We expect GDP to grow approximately 3% this year and avoid a recession thanks to a strong consumer and a healthy corporate earnings backdrop.

Inflation could be nearing a peak, offering a potential driver for improved confidence in the second half of this year. Used car and truck prices have come down significantly over the past two months, while shipping costs have also dropped nicely. These two bits of data suggest inflation may be past its peak, even if it may take a while for it to get back to normal. Add in supply chain normalization and the potential for a ceasefire in Ukraine to remove some upward pressure on commodities, and the Fed may not hike rates nine times as the bond market is currently pricing in.

From its early January peak, the S&P 500 has corrected 13.9% (as of April 29), right in line with the average yearly correction since 1980 of 14.0%. As uncomfortable as this year has been, this action is actually about average. Additionally, midterm years tend to be even more volatile, correcting more than 17% on average, but the index rebounded 32% on average in the 12 months following those midterm year lows. Lastly, the last 21 times the S&P 500 has been down double-digits since 1980, the index rallied back to end the year positive 12 times. Don’t give up hope yet.

The investing climate is quite challenging, but based on historical trends, we believe patience may be rewarded. Even if there may be some downside in the short term, consumer and business fundamentals remain supportive. Strong profits and lower stock prices mean more attractive valuations, and current levels may end up being an attractive entry point for suitable investors.

Please contact your financial advisor with questions.

 

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of April 1, 2022.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking # 1-05275942 (Exp. 05/23)

Work with Certified Industry Professional

Jerrí Hewett Miller CFP®, RICP, BFA

 

As Seen In


As Seen In

Are you seeking the confidence to move forward?

Schedule some time with us to talk and see if we’re a good fit for each other.

Securities offered through LPL Financial, Member of the FINRA/SIPC. Advisory services offered through IFG Advisory, LLC., a Registered Investment Advisor. IFG Advisory, Integrated Financial Group, and Wealth Horizon, Inc. are separate entities from LPL Financial.

FIVE STAR Wealth Manager Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2014-2019 Five Star Wealth Managers.

Women’s Choice Award® Financial Advisors and Firms represent less than 1% of financial advisors in the U.S. As of January 2018, of the 848 considered for the Women’s Choice Award, 145 were named Women’s Choice Award Financial Advisors/Firms. The Women’s Choice Award Financial Advisor program was created by WomenCertified Inc., the Voice of Women, in an effort to help women make smart financial choices. The program is based on 17 objective criteria associated with providing quality service to women clients such as credentials, experience and a favorable regulatory history, among other factors. The inclusion of a financial advisor within the Women’s Choice Award Financial Advisor network should not be construed as an endorsement of the financial advisor by WomenCertified or its partners and affiliates and is no guarantee as to future investment success.

The LPL Financial Registered Representative associated with this site may only discuss and/or transact securities business with residents of the following states:
 AL, CO, FL, GA, IN, KY, MD, MI, NC, OH, RI, SC, TN, TX, VA.