Monthly Economic and Market Summary

• Equities and Bonds Decline—Markets took a breather in April after a rally lifted stocks and bonds to start the year. The S&P 500 slid 4% while mid- and small-cap indices fell 6% and 5.5%, respectively. Foreign developed and emerging markets outperformed U.S. markets and bonds retreated following persistent inflation and the potential for higher-for-longer than expected interest rates. The 2-year treasury yield surpassed 5%.
• ISM Manufacturing PMI Slips—Economic activity in the manufacturing edged down into contraction territory in April after expanding in March. ISM Manufacturing PMI registered at 49.2 in April, down from 50.3 in March. A reading below 50.0 suggests the manufacturing sector is contracting.
• Consumer Confidence Weakens Further—April consumer confidence came in at 97.0, below consensus expectations of 104.0, falling for the third consecutive month and dipping to a 21-month low. Americans are concerned about elevated food and gas prices as well as the job market.
• Credit Card Balances—Nominal credit card balances card balances reached a record high in the last quarter of 2023. According to the Federal Reserve Bank of Philadelphia, U.S. credit card delinquency rates were the highest since 2012. Nearly 3.5% of balances were at least 30 days past due, up 0.3% from the previous quarter, and balances 60 and 90 days past due also climbed as of the end of December. About one-third of card holders pay their balance in full every month.
• Job Market Slows—The US economy added fewer jobs than expected in April and the unemployment rate rose, a sign that the labor market may be starting to ease. Nonfarm payrolls increased by 175,000, below economists estimate of 240,000. The unemployment rate rose to 3.9%. Wage growth slowed as well, with average hourly earnings rising 0.2% over the last month and 3.9% over the last year.
• Retail Sales Climb—Consumers were not deterred by rising inflation and higher borrowing costs in March as retail sales in the U.S. grew at a faster rate than consensus. Retail sales increased 0.7% for the month, higher than the forecasts at 0.3%, though lower than the upwardly revised February increase of 0.9%. Strength in retail sales was driven by online receipts and sales at gas stations, while weakness came from sales of motor vehicles, auto parts dealers and furniture.

You Are Not Rational

In late March 2024, Daniel Kahneman, who was awarded the Economic Sciences Nobel Prize in 2002, passed away at the age of 90. Professor Kahneman’s Nobel award is notable for many reasons. Not the least of which is the fact that he never took an economics class.

Despite this apparent shortcoming, Dr. Kahneman, along with his colleague, Amo Tversky, can be viewed as the godfathers of behavioral economics. For many decades, economic and financial models were built on the idea that human beings were rational and efficiently processed information. Kahneman and Tversky explored the boundaries of this supposed human rationality.

Through several experiments, many outlined in a book titled “Thinking Fast and Slow,” Kahneman found human beings were susceptible to many flaws, or biases, that called into question traditional models. For example, we humans are overly influenced by recent events and quite prone to give more credence to information that confirms our existing beliefs.

This work should serve as a reminder and warning to investors. It is very easy to fall into these bias traps and allow them to influence decisions. This is precisely why maintaining a strategic asset allocation and financial plan is important. So, the next time you feel compelled to react to the latest market news, just remember: Formulating a strategic asset allocation and financial plan helps to mitigate irrational behavior to reach your long-term financial goals.