It was surprising last week to see many of the hottest stocks falter and then collapse like drunken sailors on a dodgy street.
After all, it's April, and April is one of the best months for investors since 1950.
But stocks have been staggered. The Standard & Poor's 500 index finished below 5,000 for the first time since February 21. The Nasdaq Composite fell 5.5%, its worst weekly loss since falling 5.65% during the week of October 31, 2022.
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The Dow Jones Industrial Average finished flat.
Interest rates have generally increased, as have mortgage rates. There was a terrible scare Thursday evening when Israeli planes attacked Iranian military bases. But the damage was minimal, and Israel and Iran have tried to downplay its significance.
And now investors are facing a big week with some of the biggest earnings reports expected from Tesla. (TSLA) Metaplatforms (META) Microsoft (MSFT) and the oil giant Exxon Mobil (XOM) .
That sounds like a lot, and it is.
The major market challenges, part 1
The shock felt by professionals and retail investors begins with this: the market opened 2024 with traders expecting a decline in inflation amid multiple interest rate cuts from the Federal Reserve.
But inflation hasn't fallen enough to satisfy Fed officials, and this week Fed Chairman Jerome Powell conceded what market veterans have been waiting for: There could be a rate cut, maybe two in 2024, if only inflation cooperates.
The 10-year Treasury yield ended the week at 4.63%, up from 4.53% a week earlier and up 19% from 3.88% at the end of 2023.
Mortgage rates had fallen from about 8% in early October to 6.5% on a 30-year fixed-rate loan in January, giving hope to home buyers, sellers of existing homes and small home builders. Today, the rate is over 7%. The upward trend in rates has hit the recent existing home sales report.
The major market challenges, part 2
The big tech stocks that have led the big rally since late October have lost momentum. Most leading stocks recovered after the first quarter.
Nvidia (NVDA) , up nearly 83% in the first quarter, fell 11% last week and is down 15.7% so far in April. Chip designer Arm Holdings (ARM) up 66.3% in the first quarter, is down 30% in April alone.
Microsoft, up nearly 12% in the first quarter, is down 5.1% to $399.12 this month. Its market capitalization is no longer more than $3 trillion.
Tesla, up nearly 102% in 2023, has struggled all year with a crowded electric vehicle market and high-profile manufacturing problems. It is down 41% since the start of the year.
Not all stocks performed this poorly.
In fact, the real market stress has been focused on technology, discretionary and communications services stocks. These include Ford (F) General engines (General manager) Home deposit (HD) and Starbucks (SEX) .
Stocks in the consumer staples, financials and utilities sectors rose.
Meanwhile, United Airlines (UAL) was up 22% after an explosive earnings report. Also up last week: Goldman Sachs (GS) up 3.7%, PepsiCo (DYNAMISM) up 3.6%, and Nike (OF) 2.8%.
The strength of financial stocks suggests that investors aren't really worried about the economy. They do, however, move money, writesJon Markman, Market Observerthis week.
How to manage this market
Markets go up and down. A 5-10% decline is a given once or twice in a normal year, defined for our purposes as not being hit by a pandemic or anything like the stock market crash of 2008-2009.
The S&P 500 actually fell 10.3% between July 31, 2023 and the market low at 4,119.37 on October 27, 2023.
The index still ended the year up 24%.
The question is therefore how to manage this slowdown. And you have to start with these questions: Why am I in the market? When do I need money?
There are at least three options.
- Shift your investments to safe havens, like bonds that you can hold until maturity. The downside is that it comes with costs and, more importantly, more risk than expected.
- Do not do anything. Market downturns usually reverse if you have time to wait. The S&P 500 weathered two selloffs beginning in late 2007. It is up 657% since the bottom of the 2008-09 crash.
- Buy lower, a strategy that works with mutual funds and exchange-traded funds. For the same cash, you get more shares. And this allows your investments to generate a gain when the time comes.
What awaits us this week
Some 667 publicly traded U.S. companies are releasing quarterly reports this week. Of that total, 158 are S&P 500 components.
The big stories to watch out for:
Monday: German software giant SAP (SAP) telecommunications giant Verizon (VZ) and grocery giant Albertsons (ACI) .
Tuesday: Visa (V) Tesla, General Electric Aerospace (GE) (the survivor after breaking the old General Electric into three pieces), Texas Instruments (TXN) and United Parcel Service (UPS) .
