April brought a sharp reversal of the selloff in equity markets that we saw in March. The rebound came alongside a strong start to earnings season, with the vast majority of S&P 500 companies reporting beats and corporate profit growth continuing to surprise to the upside (Source: Factset). The path that the oil futures curve telegraphed in our March commentary, that the disruption would prove acute but temporary, is precisely how the month played out, and serves as a useful reminder that markets often work through shocks faster than the headlines would suggest.
The other major development this month is the upcoming passing of the torch at the Federal Reserve. Chair Powell presided over what is likely his final FOMC meeting on April 29th, with the Committee holding rates steady and Powell confirming he will step down as chair when his term expires on May 15th. The Senate Banking Committee voted along party lines to advance Kevin Warsh’s nomination, with a full Senate confirmation expected in mid-May, putting Warsh at the head of the table for the June meeting. Warsh has signaled he believes there is room to cut rates without reigniting inflation, in part because of productivity gains from artificial intelligence, though he will inherit a rate-setting committee that remains divided. The transition introduces a degree of uncertainty into the path of monetary policy that the market has not had to contend with in eight years.
We continue to favor large-cap equities over their smaller counterparts and maintain our preference for credit risk over duration risk on the fixed income side. The speed of the April rebound is a reminder of why we have consistently emphasized that volatility is something to plan for rather than something to fear, as investors who repositioned defensively during the March drawdown likely found themselves underexposed to one of the better months equity markets have delivered in some time. With the energy shock now in the rearview mirror, we expect the market’s focus to return to the labor market, the trajectory of corporate earnings, and the policy direction of an incoming Fed chair.
Information in this commentary is gleaned from third-party sources, and while believed to be reliable, is not independently verified. This content is not intended to be tax, legal, investment, or fiduciary advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Bernardo Wealth Planning recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. Past performance does not guarantee future results.