April Market insights

Markets stumble on stubborn inflation and weak GDP

Article published: May 03, 2024

By: Neil Gilfedder, CFA® Chief Investment Officer

After posting a strong first quarter, markets faltered in April. U.S. large-cap stocks (S&P 500) dropped 4.09% while small caps (S&P 600) fell 5.61%. On the international front, developed-market international stocks (MSCI EAFE) fell 2.56% while emerging-market stocks (MSCI Emerging Markets) bucked the downtrend with a slight gain of 0.45%. The Bloomberg U.S.Aggregate Bond Index, a broad measure of bonds, declined 2.53%.*


As we’ve been seeing for quite a few months now, buyers and sellers in bond and stock markets are reading the economic data and adjusting expectations for when the Federal Reserve might start cutting interest rates.

Those expectations were again changed in April when inflation data came in slightly higher than expected for the fifth month in a row. Furthermore, economic growth in the first three months of the year was lower than expected. This led some commentators to jump to predictions of stagflation, which is when inflation is combined with low economic growth. As we discuss below, it’s important not to read too much into a small number of data points. Plus, the jobs data still point to economic strength. The picture isn’t a clear one.

The inflation news shifted markets’ expectations about rate cuts from an average of two to three cuts this year by the Fed to just one to two cuts by the end of the year. (That’s on top of the overall change from the beginning of the year, when there were expectations for five to seven cuts in 2024!) That, coupled with the lower-than-expected Gross Domestic Product growth, weakened both stocks and bonds.

WHat should we be thinking about

We don’t want to overreact to the weak economic data. Remember that GDP stats are frequently revised, and job growth remains strong.

Market reactions are really a sign of buyers and sellers revising their economic predictions. But economic forecasts are notoriously fallible, and the reactions to every news event show how these buyers and sellers are trying to understand the implications of each new piece of news. Remember all those confident prognostications about an imminent U.S. recession amid the yield curve becoming inverted back in 2022? They were simply wrong. That recession still hasn’t shown up.

We should always be prepared for surprises in positive and negative directions. Also note that new uncertainties about spreading conflicts in the Middle East could throw markets for a loop even if the U.S. economy glides to a soft economic landing.

While we might all expect the Fed to cut interest rates at some point, it’s impossible to predict when. We believe market interest rates will probably move before the Fed actually makes any announcements, reacting to economic news as it develops. It’s also important to remember that the Fed only controls short-term rates, which have influence on but do not control rates on consumer loans, like mortgages.

Markets are inherently unpredictable. That’s why we design highly diversified portfolios, which is the best approach to help our clients achieve their goals, in our view. If you have questions about your portfolio, please don’t hesitate to contact your planner.

* Index return data provided reflects “total return,” which includes income generated by securities held within the index, such as dividends and interest. Because it includes income, index total returns can differ from index price returns that only consider prices.


An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index.

Investing strategies, such as asset allocation, diversification or rebalancing, do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies.

Past performance does not guarantee future results.

Neil Gilfedder, CFA®

Chief Investment Officer

As executive vice president of investment management and chief investment officer, Neil oversees the team that manages investments for all 91̳ Engines clients. Neil directs the investment management operations and evolution of our proprietary investment methodology. Neil received a bachelor's degree in philosophy and economics from the University of York and a master's degree in economics from Stanford University.