The saying, “April Showers bring May Flowers,” that most know, actually originates from the United Kingdom, where April is one of the soggier months based on the position of the jet stream. Since this area typically has a cooler climate, the lower temperatures often push back the appearance of flowers to late April and early May. The phrase is also believed to come from an early poem written in 1557, from a man by the name of Thomas Tusser. He compiled a collection of writings he called, "A Hundred Good Points of Husbandry" with a line that goes, “Sweet April showers, do spring May flowers.”1
As rain falls from the sky, the market fell beside it for the month. April produced negative monthly returns across all US indices, establishing new year-to-date lows for the S&P 500 and Nasdaq. The S&P 500 lost 8.8% in April, its worst month since March 2020. The Dow Jones Industrial Average lost 4.94% and the Nasdaq fell 13.3%, its worst month since October 2008. Bond markets began signaling recession fears with the short-term interest rates and long-term rates inverting. It is also worth noting the yield on the 10-year U.S. Treasury note logged its biggest monthly increase in more than a decade on April.2
The US Federal Reserve’s path to tightening monetary policy is expected to ramp up in May, with the central bank on pace to raise rates for the second time since 2018. The central bank’s communications about the ongoing policy will be key, given the economy contracted by 1.4% in the first quarter while inflation is still hot. 3
Even with all the pessimism in the markets, there is good news. Earnings season has been quite strong, corporate balance sheets are healthy, and the consumer is strong which all suggest there won’t be a recession in 2022. Additionally, sentiment is near historical levels of pessimism, a good thing from a contrarian point of view. Lastly, should inflation peak soon, this could be a major driver for equity returns later this year.4
Therefore, when we think about April, the spring season, and the outlook ahead, its best to think about what Robert Louis Stevenson said, “Don't judge each day by the harvest you reap but by the seeds that you plant." Markets for the month fell like April showers, which hopefully brings a bloom in May for the markets.
Director of Wealth Advisory