- After a strong start to 2024, both stocks and bonds fell in April, reminding investors that asset prices don’t always go up.
- The average U.S. diversified stock mutual fund lost 4.8% in April, erasing March’s 3.48% advance, and trimming the year-to-date gain to 3.45%, according to Lipper Refinitiv data.
- Wall Street blamed the losses on stubborn inflation, which remained stuck at 3.5%, and a half-point spike in the 10-year Treasury yield to 4.68%.
April saw a dip in both stocks and bonds, with the average U.S. diversified stock mutual fund losing 4.8%. This article delves into the reasons behind this decline and its implications for investors.
Best Mutual Funds Take A Hit
The S&P 500’s 4.08% drop in April was “payback” for the first-quarter rally that saw the market benchmark rise more than 10%, says Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Despite the Dow’s 5% fall and the Nasdaq’s 4.38% dip in April, Wall Street is taking the declines in stride. There’s little talk of a big break ahead with the economy still in expansion mode and consumers still out and spending.
Best Mutual Funds Take A Dip
John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, says the market dip is a “fairly normal repricing” in reaction to investors coming to grips with the fact that the six or seven Fed rate cuts they expected at the start of 2024 aren’t happening. Wall Street is now pricing in just 37% odds of two quarter-point cuts by year-end, according to CME Group’s FedWatch Tool, as the Fed works to get inflation back down to its 2% target.
Nowhere To Hide
Virtually every type of mutual fund lost ground in April, Lipper Refinitiv fund data shows. Growth funds took the brunt of the selling, and smaller-cap stocks fared worse than big-cap names. Small-cap growth funds cratered 6.7%, midcap growth funds tumbled 6.42%, and large-cap growth offerings shed 4.72%. Most sectors also finished in the red, with real estate topping the loser’s list with a 7.05% loss, followed by health care/biotech, down 6.36%, and science and technology funds, off 5.87%.
Best Mutual Funds Burned Abroad
Mutual fund Investors hoping for the benefits of diversification outside the U.S. were also disappointed. World stock funds fell 2.44%. The lone winners were China funds, which continued their rebound with a 4.13% gain, and India funds, up 2.18%. Cannabis ETFs, which soared after reports surfaced that the U.S. plans to reclassify marijuana to a less dangerous drug under federal law, was one bright spot, data from Morningstar Direct show.
Fixed Income Options
Investing in adjustable-rate senior loans, including bank loans, is a good way to play the bond market now, says Scott Caraher, manager of Nuveen Floating Rate Income (NFRIX). These loans allow you to generate income that moves higher with interest rates. The main reason for his bullishness is that these loans are not subject to so-called duration risk. That means the holdings are not subject to interest rate risk, or losing value when rates rise.
Spreading Your Risks
Many of the top 20 diversified stock ETFs (ranked by performance through the end of April) that fell the most last month were midcap ETFs, according to Morningstar Direct. ETFs that invest in small-company shares got hit hard in April, too. In another sign of a broad sell-off, Vanguard Total Stock Market (VTI) dropped 4.34%.
Following The Best Mutual Funds
Arthur Yeager, co-manager of Putnam Core Equity, a 2024 IBD Best Mutual Fund Awards winner, says sticky inflation and rising rates “probably have taken a little of the froth out of the market.” For the stock market to start climbing again, inflation numbers must start to come down to avoid the Fed having to raise rates again to finally get inflation back to 2%.
Tempering Magnificent Seven
The fund has trimmed back its Magnificent Seven holdings and deployed the proceeds to more value-oriented stocks. But that doesn’t mean they’re bearish on the megacap stocks. “We still want to be there,” said Yeager. “They’re just incredible companies, with massive cash flows, massive moats and massive advantages.”
Finding Winning Best Mutual Funds
For the second month in a row, the tech sector was outpaced by precious metals — and pot stocks. The tech-heavy Invesco QQQ Trust ETF (QQQ) gave back 4.37% to trim its year-to-date gain to 3.82%. Amplify Alternative Harvest ETF (MJ) skyrocketed 15.55%. Similarly, AdvisorShares Pure U.S. Cannabis ETF (MSOS) rallied 12.49% to stretch its 2024 gain to 60.63%.
Conclusion
April was a challenging month for investors, with both stocks and bonds taking a hit. However, experts suggest that this is a normal market correction and advise investors to be patient and wait for a better entry point. Despite the overall market dip, some sectors such as China funds, India funds, and cannabis ETFs saw gains, highlighting the importance of diversification in investment portfolios.
