Market Commentary: April Volatility

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Volatile in the markets with a chance of showers:

We have the raingear covered.

“April is the cruelest month”, T.S. Eliot writes in his celebrated 1922 poem, The Waste Land. That’s been the case for the S&P 500 this month, with the index down 5.21% through April 22nd after a strong rally to start the year.  In fixed income, yields continue their upward trend year-to-date.

 Persistent inflation prints and resilient economic data this year has set the tone for fewer rate cuts by the Federal Reserve than were expected at the end of 2023. We attribute April’s cruelty mainly to the market’s recalibration of rate cut timing as well as escalating geopolitical tensions in the Middle East and some healthy profit-taking. Market volatility increased significantly in April while other fundamental and technical indicators point to continued downward momentum.

We’ve taken several forward-looking investment actions in our custom models in response to the volatility indicators. As always, our portfolios remain diversified. These measures include: (1) increasing our allocations to buffered large-cap equity funds which maintain upside exposure while limiting downside risk; (2) adding funds with overweight factor exposure to free cash flow yield and strong fundamentals whose holding companies appear capable of riding out periods of hardship; and (3) adding market-neutral exposure to our alternatives allocations to seek potential return opportunities through high-quality stock selection, regardless of broad market direction, while reducing overall portfolio volatility. Our existing gold positions should continue to serve as a portfolio hedge.

In closing, April has been cruel but we maintain a more cautiously optimistic outlook than T.S. Eliot. Our portfolios are positioned such that April showers might bring May flowers, but we’re packing an umbrella. We heed these warning signals and take necessary precautions to protect our clients’ wealth. First quarter corporate earnings announcements, now ramping up, will influence our outlook going forward.

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any investment product. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Past performance does not guarantee future results