“Action is the foundational key to all success.”
-Pablo Picasso
Here’s what you need to know this week:
· Stocks post their best month of returns since 2020
· Markets remain cautious as inflationary pressures persist
Blowout
Stocks rose dramatically in April, marking the best month of returns since 2020:
This bull run began on news of negotiations with Iran, leading investors to believe the conflict would be short-lived. Talks quickly fell apart but stocks have forged upwards regardless. This may seem counterintuitive, but it is important to remember that the stock market is forward-looking.
If you look at the chart above, you can see that stocks bottomed in March of 2020, just as the COVID pandemic was beginning to impact daily life. Stocks correctly saw the impact of COVID and sold off dramatically to start the year, but also hit their bottom and rebounded once the government announced their extraordinary stimulus measures on March 23rd.
This rapid rise has also brought talks of a bubble back to the forefront, although so far the data doesn’t show a bubble. Stocks are valued by placing a multiple on a company’s earnings; this metric is called the price-to-earnings (P/E) multiple. For example, if a company earns $10 in a year and the company is valued at $120, the company would have a P/E multiple of 12. Market bubbles occur when investors pay higher and higher multiples for stocks, driving valuations higher than companies will be able to justify.
This year has seen the opposite: the component companies of the S&P 500 have posted such strong earnings that P/E multiples have actually contracted:
This makes sense if you think about it: it’s hard for there to be a bubble if everyone is worrying about a possible bubble. Contrast this with the dot com bubble where stock valuations wildly outpaced earnings:
Still Rising
Investors have stayed cautious through this bull run for a reason. The Iran War is still in full swing and negotiations have shown few signs of progress in the last couple of weeks. Iranian leadership sent a fourteen point peace proposal to President Trump over the weekend but President Trump rejected key points of the deal such as full withdrawal of US troops from the region[1].
Oil prices continue to march higher due to the prolonged conflict. The national average price per gallon has risen more than 50% since the start of the Iran War and is rapidly approaching the all-time high of $5.01/gallon:
This spike has begun to bleed into the inflation numbers. Last Thursday we received the Personal Consumption Expenditures (PCE) report for the month of March and the report showed annualized inflation rising to 3.5%, a stark jump from the 2.8% print in February:
Core PCE which excludes food and energy prices is also rising. Even if you exclude the cost of energy itself, retailers still have to increase their prices to account for increased shipping costs due to higher oil prices. There’s a battle between corporate earnings and oil price anxiety in the market, and right now it looks like strong earnings growth is winning.
What Else
· Spirit Airlines has officially shut down and canceled all flights after failing to secure a $500 million bailout from the federal government
· Congress finally reached a deal to fund the Department of Homeland Security, ending the record 75-day shutdown
· The Pentagon pulled 5,000 US troops out of Germany as disagreements between the US and Germany continue to grow
· King Charles and Queen Camilla returned to the UK after a four-day visit to the US
· Golden Tempo won the Kentucky Derby on Saturday, making Cherie DeVaux the first female trainer to train the winning horse at Churchill Downs
· The OKC Thunder defeated the Phoenix Suns 4-0 and face the Los Angeles Lakers in the second round of the NBA Playoffs
What We’re Reading
On September 26th, 1918, a US Coast Guard cutter known as The Tampa went missing while escorting a convoy of merchant ships off the coast of England. The Tampa’s fate remained a mystery for over 100 years; however, a team of intrepid divers have found The Tampa’s shipwrecked remains after three long years of searching. Click below to see photos of The Tampa, read how the divers found the shipwreck and read an hour-by-hour account of The Tampa’s final fateful voyage:
What’s Happening Downtown
The Myriad Gardens is hosting the annual Flower & Garden Festival this Saturday, May 9th. This event runs from 9:00 AM to 4:00 PM and features more than 70 vendors offering flowers, herbs, trees, native plants, succulents, ornamental grasses and just about any other type of plant you can imagine. There will also be stalls for local artists as well as food vendors; click below for a full list of vendors and a video interview of some of the vendors:
· OKC Flower & Garden Festival
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, CFP®, Brandon Ingerson, Bill Daniel, Sam Postich, Jenni Hess
[1] BBC