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Daily Capital

April Market Recap: Stocks & Bonds Drop in Lockstep

Global stocks and bonds lost value in April as interest rates rose and expectations grew for more aggressive actions from central banks to restrict inflation. Many now expect U.S. short-term rates to be around 3% by year end. While possible, we suspect this may prove exaggerated, especially if the economy or equity markets show signs of softening. If so, it could provide a cushion to stocks and would help bonds recover.

Interest Rates

Future interest rates remain highly uncertain, but there is little doubt about the current direction. Ten-Year Treasury yields began the month at 2.3% and approached 3% by the end of it. 30-Year Mortgage rates shot past 5%, reducing affordability and making a decline in home prices over the remainder of the year an increasingly likely possibility.

Growth Stocks

Earnings results so far this spring have been generally strong, but misses have been met harshly, especially in growth stocks. Netflix grabbed the most unwanted attention, with shares losing almost half of their value in April after announcing its first decline in subscribers in a decade. Online media companies in general had a rough month with Alphabet (Google), Meta (Facebook) and Disney all falling more than the overall market.

The prospect of higher rates has caused many investors to rethink their infatuation with growth stocks. The Nasdaq 100 (QQQ) was down over 13% in April and is hovering around bear market territory for the year. Many pandemic-era growth favorites have seen shares plummet by well over 50% from their peak. Recently, we’ve seen contagion into previously invincible mega cap growth stocks, with some lagging major indexes for the year. So far, Apple and Microsoft, the two biggest, have performed similarly to the overall market.

Market Correction

When style rotations occur, or sector bubbles pop, they often overcorrect. Currently, many exciting growth companies suddenly have valuations that seem quite reasonable. While they can be tempting, we continue to recommend a diversified style approach, slowly adding to whichever style is out of favor. “It can’t go down more” often proves to be quite wrong.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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