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As the month begins, markets will be looking for signs from the Fed.

The stock market is heading into what promises to be a volatile second quarter, but April is traditionally the best month of the year for stocks.

The major indices were higher in March, but they turned in a weak performance for the first quarter, the worst since the pandemic. Investors have been worried about rising interest rates, the war in Ukraine and inflation, which was made even worse by disruptions in commodities exports from both Russia and Ukraine.

Stocks are typically higher in April, and it is historically the best month of the year for the S&P 500. The S&P has been higher 70% of the time and has gained an average 1.7% in all Aprils since World War II, according to Sam Stovall, chief investment strategist at CFRA. For all months, the S&P averaged a gain of 0.7%.

The S&P 500 was up 3.6% in March, and Stovall said the rally could continue. “I think we get back to breakeven, but then I wouldn’t be surprised if we go through another pullback or correction before we have an end of year rally,” he said.

Market focus in the week ahead will remain squarely on developments around the Ukraine war and on the Federal Reserve. The Fed on Wednesday is scheduled to release minutes from its March meeting, where it raised interest rates for the first time since 2018.

There are also a handful of Fed speakers, including Fed Governor Lael Brainard, who speaks Tuesday.

Greg Faranello, AmeriVet Securities head of U.S. rates, said the Fed minutes could be the highlight of the week since the central bank is likely to provide more detail on its plans to shrink its balance sheet. The Fed has nearly $9 trillion in securities on its balance sheet, and a reduction of those holdings would be another step to tighten policy.

“The market is curious. They’re going to be looking for some clues in terms of how quickly, how big, what the caps look like,” said Faranello.

The economic data calendar is light, with factory orders Monday, international trade and ISM services Tuesday and wholesale trade Friday.

Traders will also be watching for any comments from companies ahead of the first-quarter earnings reporting season, which starts in mid-April.

“The first-quarter earnings have actually been improving in the last month, so that’s encouraging,” said Stovall.

Farewell to first quarter

The Dow was off 4.6% for the first quarter, while the S&P 500 was down 5%. The worst performer by far was the Nasdaq, down 9.1%. In the past week, stocks were barely changed. The Dow was down 0.1%, while the S&P was up 0.1%. The Nasdaq was up 0.7%.

Interest rates also moved dramatically during the quarter, with the benchmark 10-year Treasury yield temporarily touching a high of 2.55% in the past week, after starting the quarter at 1.51%.

On Friday, the 10-year was yielding 2.37%, while the two-year yield, which most reflects Fed policy, was at 2.45%. The two-year was yielding 0.73% at the beginning of the year.

Faranello said bond yields can keep going higher on inflation concerns, but they could consolidate before another big move.

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