S&P 500 slumps more than 4% in April (NYSEARCA:SPY)

The S&P 500 (SP500) on Tuesday retreated 4.16% for April to end at 5,035.69 points. Its accompanying SPDR S&P 500 ETF Trust (NYSEARCA:SPY) slipped 4.03% for the month.

The benchmark index posted its first negative month since October 2023, and its worst monthly performance since September last year. In fact, according to data from Bespoke Investment Group, this was just the fourth year in the last 20 that the S&P (SP500) had posted a decline for April.

This month’s retreat was primarily due to market participants significantly dialing back their interest rate cut expectations by the Federal Reserve following a spate of stronger-than-expected economic data. At the beginning of the year, Wall Street was expecting at least seven 25 basis point rate cuts. Now, even one such cut might be off the table.

“It certainly feels quite different from the first quarter of this year, which saw fresh highs being hit regularly by the Dow (DJI), S&P 500 (SP500) and NASDAQ (COMP:IND). Back then, nothing could dissuade investors from loading up on stocks. Good news was good, and bad news was good too,” David Morrison, senior market analyst at Trade Nation, told Seeking Alpha.

“Now it feels quite different. Now, investors tend to sell first and ask questions later. That’s not to say there’s any panic or even mild feverishness out there. Just that there’s a noise coming from the attic, and no one wants to climb up and take a peek. There’s a good reason for this shift in sentiment,” Morrison added.

The April woes began in the very first week – the “jobs week.” February’s Job Openings and Labor Turnover Survey along with March’s private employment data from ADP and the nonfarm payrolls report all showed a labor market that continued to remain stubbornly resilient to the Fed’s aggressive monetary tightening.

The second week of this month saw the consumer price index for March increasing more than anticipated on a M/M basis for both the headline and core readings. Retail sales for March released in April’s third week further pointed to robust consumer spending which is good for economic growth but is a problem for a Fed trying to cool inflation.

Last week saw a major reality check for markets in the form of the U.S. Q1 gross domestic product (GDP) growth report. GDP rose at an annual rate of 1.6%, lower than the anticipated increase of 2.3%. Meanwhile, the core personal consumption expenditures (PCE) price index – the Fed’s preferred price gauge – ticked up more than expected in Q1 2024. The core PCE deflator for March pointed to sticky inflation as well.

Finally, earlier today the employment cost index – which measures the change in the hourly labor cost to employers over time, thus detailing the growth of total employee compensation – came in higher than anticipated for Q1 and added another setback to the Fed’s fight against inflation.

All eyes are now on the Fed’s latest monetary policy decision tomorrow and subsequent press conference by chair Jerome Powell.

“The importance of tomorrow’s press conference following Powell’s presentation is escalating for market participants. From the beginning of the year to today, rate expectations have shifted significantly; we’re down from seven estimated cuts to only one for 2024, as economic and inflation data has surprised to the upside all year on an aggregate basis,” José Torres, senior economist at Interactive Brokers (IBKR), said.

Turning to the monthly performance of the S&P 500 (SP500) sectors, all 11 ended in the red except for defensive name Utilities. Real Estate saw an outsized loss of nearly 9%, while Technology and Health Care rounded out the top three losers with a decline of more than 5% each. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from March 28 close to April 30 close:

#1: Utilities +1.59%, and the Utilities Select Sector SPDR Fund ETF (XLU) +1.66%.

#2: Energy -0.87%, and the Energy Select Sector SPDR Fund ETF (XLE) -0.34%.

#3: Consumer Staples -1.07%, and the Consumer Staples Select Sector SPDR Fund ETF (XLP) -1.13%.

#4: Communication Services -2.22%, and the Communication Services Select Sector SPDR Fund (XLC) -4.64%.

#5: Industrials -3.62%, and the Industrial Select Sector SPDR Fund ETF (XLI) -3.52%.

#6: Financials -4.31%, and the Financial Select Sector SPDR Fund ETF (XLF) -4.18%.

#7: Consumer Discretionary -4.35%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -4.50%.

#8: Materials -4.61%, and the Materials Select Sector SPDR Fund ETF (XLB) -4.59%.

#9: Health Care -5.19%, and the Health Care Select Sector SPDR Fund ETF (XLV) -5.01%.

#10: Information Technology -5.46%, and the Technology Select Sector SPDR Fund ETF (XLK) -5.78%.

#11: Real Estate -8.62%, and the Real Estate Select Sector SPDR Fund ETF (XLRE) -8.45%.

More on the markets