Looking Back at April
In April, we had some noticeable swings in the stock market, although the S&P did end the month slightly up from where it started. Fear of quickly rising interest rates has been a major influence on market behavior. We have seen the 10-year Treasury bond rate go from 2.06% in September to 3.00% this week.
The problem with rising interest rates is they affect so many other areas of our economy. The Federal government, as well as corporations, have used this low-rate environment to borrow money, so as rates rise so will the cost of the money they borrowed. Consumers will pay more on new home mortgages, auto loans, existing and new credit cards along with almost anything else purchased with credit.
Looking Ahead to May
The Fed is not projected to raise rates in May, so the market will probably begin to concentrate on first quarter earnings’ reports. Most have been well above projections. As we approach the remainder of the summer we could expect more volatility as the Fed continues to raise short-term rates to keep inflation in check. However, investors will have had time to become more comfortable with the rate increases and, as a result, the increases should have less influence on the overall market movement.
It is important to remember that trying to time the short-term market movement can often do more harm than good to a portfolio. As investors, not traders, we need to look at the long-term outlook. We do believe that our allocations should tilt away from bonds at the present time. We will continue to closely monitor economy developments as well as global events that affect the market.