The S&P 500’s 5-month winning streak has come to an end. It was a good run for stocks, but a healthy pullback was needed. In our April market update, we said, “Even though it has been a great start to 2024, investors should expect pullbacks in the weeks and months ahead”. Below are the April returns for
the popular benchmarks that investors track (Data provided by Y-Charts & Commonwealth Financial Network):

• S&P 500 Index: -4.2%
• Dow Jones Industrial Average: -5.0%
• Nasdaq Composite Index: -4.4%
• Russell 2000 Index: -6.8%
• S&P Target Moderate Risk Index: -2.74%

Below is a chart from Ryan Detrick, Carson Investment Research, and Ned Davis. As you can see, stock declines like we just experienced are expected from year to year. There are usually 3.5 mild 5% pullbacks each year and it is normal for the market to correct by 10%, once per year. Between investors realizing some profits from 2023 and institutional money managers repositioning during earnings season, it was a perfect time for a little sell-off.

April saw several “failed breakouts” that led to a lot of selling in the market. Failed breakouts refer to a situation where a stock or an index makes a new all-time high and then quickly reverses to the downside. We want to see these breakout levels reclaimed over the next few weeks to have confidence that the pullback is over. Below is a recent example of a textbook failed breakout in the Invesco S&P 500 Equal Weight ETF (RSP).

Events the market is focusing on:

• Middle East & Geopolitics: In April, tensions rose between Israel and Iran. Attacks and retaliatory responses had investors on edge, wondering if this would turn into a larger conflict. Thankfully, the hostility has seemed to calm down for now.

• Inflation: Recent inflation reports have come in hotter than expected. Investors are concerned that inflation will begin to rear its ugly head once again, which could be a headwind for stocks.

• Earnings Season: Companies are in the middle of reporting their financial results for Q1 of 2024. It is not unusual for volatility to tick up during this time of year. So far, companyspecific earnings have been coming in stronger than expected for the most part. However, investors are taking this opportunity to harvest some gains and put money to work elsewhere in the market.

In conclusion, the market took a much-needed breather in April. We believe this pullback will be shortterm, and stocks will begin moving higher sooner rather than later.

As always, don’t hesitate to reach out to our team with any questions you may have.