The American Resilience portfolio returned -3.4% for the month of April, which was slightly ahead of the S&P 500 Index, which produced a -4.1% return. Across the portfolio, individual position returns ranged from -8.7% for Roper Technologies (ROP) to 1.3% for Texas Instruments (TXN).
April was a difficult month for stocks, which had climbed steadily since the beginning of the year. In mid-March, we had talked about the Fed’s apparent indifference to relatively hot inflation readings that have been surfacing over the course of the year. The market rallied through the end of March after the Fed signaled that rate cuts were still in the cards.
Over the course of April, additional economic data points came through that suggested the Fed will not be able to maintain its dovish posture. Implied expectations for rate cuts over the course of the year began to diminish, and long-term Treasury yields backed up significantly.
The month of April concluded with a hot Employment Cost Index reading. Wages and benefits grew at a 1.2% pace in the first quarter of 2024, which was the highest reading since the first quarter of 2023. While this is good news for wage earners who are struggling to close the gap on post-pandemic cost of living increases, it is bad news from the standpoint of the broader battle against inflation.
Wage inflation tends to be sticky and represents a key component of the overall inflation calculation. With employment costs still growing close to 5% annualized, the path to 2% targeted inflation rates is challenged. Bond investors have taken note as 10-year Treasury yields backed up nearly 0.5% over the course of April, moving from approximately 4.2% to 4.7%.
Dissipating hopes for rate cuts and rising long-term rates weighed on stocks, while a number of commodities have performed well as the inflation narrative lingers. Stocks and Treasuries declined in April, but the Dow Jones Commodity Index had a positive month.
