“Sweet April showers, do spring May flowers.” – Thomas Tusser
We are all familiar with some version of the rhyme about April showers and May flowers, though the meaning behind the words may be a bit deeper than you have previously imagined. First mentioned by Thomas Tusser in a book containing succinct advice for farmers (circa 1557), it was meant to be a lesson in patience, reminding us that we must endure the unpleasant heavy rains of April, if we are to enjoy abundance of flowers in May, which in turn signify a bountiful harvest in the fall.
This April has indeed been a bit dismal for investors, as markets have responded to inflationary pressures, an increasingly aggressive Fed, geo-political turbulence, and ongoing challenges to global supply-lines.
The Fed is raising rates to combat a 40-year high in inflation, and markets are clearly unsettled with how aggressive the Fed is becoming. Despite earnings and economic data coming in well, stocks were down for the month. The S&P 500 returned -8.72% for the month and -12.92% year-to-date. The best performing sectors in the S&P 500 were consumer staples, energy, and materials, while technology stocks suffered the worst month since the market downturn in 2008. In fixed income, yields continue to rise with expectations of interest rate policy changes.
There is no guarantee that May will provide a rosier picture for investors, yet the lesson of patience remains. We endure periods of elevated market volatility, while staying focused on the time-tested disciplines of diversification and periodic rebalancing, in anticipation of harvesting the long-term rewards available to investors who do so.
Articles of Interest
Sudden market downturns can be unsettling. But historically, US equity returns following sharp downturns have, on average, been positive. Since 1926, U.S. stocks have tended to deliver positive returns over one-year, three-year, and five-year periods following steep declines. Cumulative returns show this to striking effect. Five years after market declines of 10%, 20%, and 30%, the cumulative returns all top 50%.
Americans often make the mistake of focusing too narrowly on their account’s investment returns while giving little attention to tax planning. Many people have no clue how much of the money in their tax-deferred retirement accounts is actually theirs and how much could end up going to Uncle Sam. They either forget the IRS will eventually take its share through income taxes, or they seriously underestimate the significance of that amount.
There were nearly 5.4 million new business applications in the United States last year, the highest number of startups launched in a single year that has been recorded. And that came on top of a record year in 2020. But not every startup is the next Apple or Netflix. While there’s potential for great long-term benefits to entrepreneurship, there are also a lot of financial hurdles to clear along the way. For starters, about a third of small businesses fail within the first two years, according to the Small Business Administration.
This 2-minute video takes a humorous look at the hysteria and hype that characterize so much of investing today. Spoiler alert: You won’t get any hot stock tips on 5 stocks to buy right now. Instead, the video makes a strong case for owning the market, not trying to outguess it, and letting the long-term potential of a diversified portfolio work for you.