Stock indexes rose for the second consecutive week, within which the Dow Jones Industrial Average and S&P 500 rose for the last nine straight trading days, their longest such streak in more than twenty years (November 2004). We attribute the strength in the equity markets to several factors – a technical bounce from oversold levels off the April 8 closing lows, better-than-expected corporate earnings season, a resilient domestic economy, demand for U.S. Treasuries which have pushed interest rates lower, and a pause in the tensions between the U.S. and its trading partners.
Despite the rally, as noted last week “our sense of the current environment is one where the stock market as well as interest rates remain somewhat rangebound, supported by a modestly growing economy, low unemployment and the possibility of ending the trade war but kept from bolting higher as investors worry that these negotiations may take longer than expected and the yet to be determined economic impact from President Trump’s unconventional relationship with our allies and adversaries, alike. Simply put, the market is biding its time to see how things play out.”
Berkshire Hathaway, chaired by the legendary CEO Warren Buffett, dropped its Q1-2025 results on Saturday morning, noting within that “changes in macroeconomic conditions and geopolitical events, included changes in international trade policies and tariffs, may negatively impact our operating results”
Speaking at Meta’s LlamaCon Conference this past Tuesday, Microsoft CEO Satya Nadella stated that “maybe 20%, 30% of the code that is inside of our repos today and some of our projects are probably all written by software.” Nadella went on to add that “our best is sort of that in the next year probably… maybe half the development is going to be done by AI, as opposed to people, and then that will just kind of increase from there.” Our take, from a hiring perspective, this is troublesome. However, from a profit margin perspective at Microsoft and elsewhere, this is encouraging.
The Merriam-Webster Dictionary defines the word “whipsaw” as “to beset or victimize in two opposite ways at once, by a two-phase operation, or by the collusive action of two opponents.” A disciplined approach is what is necessary to avoid the potential for having your portfolio whipsawed. Do not stray from your intelligently designed asset allocation model as it assumes periodic bear markets. Since 1929, there have been 27 bear markets (defined as a drop of >20%), every five years, on average. Should you feel the need to make changes within your asset allocation, do so incrementally as it prevents existential damage to your portfolio. Finally, watch some baseball, read a book or get some exercise so as not to get sucked in to the emotions of the time.
According to data from Bloomberg and as reported by Innovator ETFs, within bear markets, there have been 96 rallies of between 5% and 10% and 41 rallies over 10%. Furthermore, the average rally return is 9.19%, lasting an average of 20.42 days. Thus far, the S&P 500 has risen 14.13% off the April 8 closing low.
That said, time will tell as to whether this has been a rally within a bear market or one which will mark the continuation of the current bull market. Oddly enough, when “googling” data under “bear market rallies” for this bullet, most links took me to the April 2020 timeframe when many pundits viewed the rally off the pandemic induced low set on March 23, 2020, as a bear market rally. Fortunately, that low turned out to most likely represent a generational buying opportunity.
Although seven of the eleven sectors that comprise the S&P 500 has risen thus far this year, the index has nonetheless fallen 3.31% as those seven sectors those seven only comprise 41.28% of the index while those four that have fallen account for the remaining 58.72%. They include Financials, Energy, Technology and Consumer Discretionary.
It’s The Economy…”
Non-Farm Payrolls(approximately 80% of the U.S. workforce) rose by 177,000 during April, well above the consensus estimate of 130,000. Payroll numbers for the prior two months were revised to 185,000 and 102,000, from 228,000 and 117,000 during March and February, for a net loss of 58,000. The rolling three-month average rose to 155,000 from 133,000. Private Sector companies added 167,000 jobs while the Public Sector added 10,000. This includes a 9,000 drop in federal government employment during April and 26,000 year-to-date. The Unemployment Rate remained at 4.2% during April when compared to March. The Unemployment Rate had gotten as low as 3.4% in April 2023. The Labor Force Participation Rate ticked up to 62.6% during April from 62.5%, but remained well below the pre-COVID peak of 63.4% reached during February 2020 and below the average of 67.1% in 2000, indicating a longer-term structural problem with the labor market as each tenth of a percent represents approximately 168,570 workers. The Average Duration of Unemployment rose to 23.2 weeks in April from 22.8 weeks in March, above the 21.4 weeks (SAAR) recorded one year ago. The Median Duration of Unemployment rose to 10.4 weeks during April from 9.8 weeks in March, below10.5 weeks (SAAR) one year ago. The number of Long-Term Unemployed (27 weeks or longer) rose 179,000 or 11.97% to 1,674,000 in April from 1,495,000 in March, well above the level of 1,271,000 (SAAR) one year ago. Those unemployed less than 15 weeks totaled 62.6% of the unemployed while those unemployed 15 weeks and over totaled 37.4% as compared to 64.3% and 35.7% one month ago. (Source, U.S. Department of Labor)
First Quarter Gross Domestic Product (initial estimate), as reported by the Commerce Department, a tally of the output of all goods and services in the United States, fell at an annualized rate of 0.3%, down from 2.4% during Q4 and as compared to 2.1% y/y. Final Sales to Domestic Purchasers rose at an annual rate of 2.3% during Q1, after rising 3.0% in Q4 and by2.9% y/y. Government Spending fell at an annualized rate of 1.4%, down from 3.1% during Q4 and as compared to 2.4% y/y. The Personal Consumption Expenditures (PCE Price Index),rose at annual rate (SAAR) of 3.7% during Q1 (2.6% y/y) versus 2.3% during Q4. The PCE Price Index Excluding Food and Energy rose at an annual rate of 3.5% during Q1 (2.8% y/y), above the 2.6% during Q4. (Source, U.S. Bureau of Economic Analysis)
The Bureau of Economic Analysis reported that Personal Income rose 0.5% during March (4.3% y/y), after rising 0.7% in February. Disposable Personal Income (personal income less taxes) rose 0.5% (4.0% y/y), after rising 0.8% during February. Adjusted for inflation, disposable personal income rose 0.5% during March (1.7% y/y), after rising 0.4% in February. The Wage & Salary Component rose 0.3% in March (3.3% y/y), after rising 0.4% in February. Personal Consumption Expenditures (PCE), representing approximately 70% of economic activity rose 0.7% during March (3.3% y/y) after rising 0.1% during February. The PCE Chain Price Index fell 0.1% in March (2.3% y/y) following a rise of 0.3% during February. Excluding food and energy, the Core PCErose 0.1% during March (2.6% y/y), after rising 0.4% during February. (Source, Bureau of Economic Analysis)
According to the Department of Labor, the Employment Cost Index, a “measure of quarterly changes in compensation costs, which include wages, salaries, and employer costs for employee benefits for civilian workers (non-farm private and state and local government)” rose by 0.9% during the first quarter, matching the gain recorded during Q4-2024. The ECI has risen by 3.6% y/y. The wages & salaries component(70% of ECI)rose by 0.8% during Q1 vs. 1.0% during Q4-2024 and as compared to 3.5% y/y. The cost of benefits rose by 1.2% over the past quarter, after rising 0.8% during Q4-2024 and by 3.9% y/y. (Source, U.S. Bureau of Labor Statistics)