I hope this update finds you well! Wanted to share some notable insights on the market–one of them being that U.S. stock market indices chugged ahead in April. Living up to expectations for last month, the S&P 500 added 5.2%, the Dow 30 exceeded 2.5%, and the tech-heavy Nasdaq added over 5.0%.

Federal Reserve & Interest Rates

As expected, the Fed kept interest rates near zero during their April meeting. As the economy has continued to accelerate since the pandemic lows, it seems that the Federal Reserve wants to keep the “easy money” theme going with low overnight Fed Funds rates.

For context, this is how interest rates work: the Fed sets the overnight lending rates (known as the Fed Funds rate) and the market itself trades all of the other rates (10-year notes, 30-year bonds, etc.).

In recent months, eyes were glued on the rising 10-year note yield, but the frenzy of the acceleration has slowed since the end of March with highs exceeding 1.75%. On the last day of April, 10-year notes closed out at a 1.63% yield, well off the March highs yet still higher than the sub 1.00% yields that were prevalent throughout 2020. The pause in the rise of the 10-year note could indicate that rates may remain lower for longer, which has been the theme of the Federal Reserve. The initial increase in rates in 2021 and subsequent pause in the climb have had little impact on the broader stock indices.

Sector Rotation – Let’s Talk Defense

As sports fans well know, the best offense is a good defense. History shows us that the longer we stay invested in the stock market, the better the results are over time–and rotating into different sectors can be an integral part of the overall long-term plan. Given the current seasonality tendency for slower summer returns, rotation into more defensive sectors that could pay higher dividends like utilities is a strategy worth mentioning.

Recently, I read a great Forbes article on the current sector rotation in the market. It looks like the inflows to more defensive sectors have begun to increase, including REITs, Utilities, Consumer Staples, and Financials.

What is the Current Message of the Market?

As things are returning back to “normal,” it seems that more money is flowing into goods and services. In addition to live events picking back up, there’s pent-up demand for travel and getting out of the house in general! Keep in mind, however, that the market is a forward-looking mechanism and that some of the increased demand could be priced into sectors already.

Given the seasonality and recent all-time highs, it could be an opportune time to discuss a sector rotation strategy in your portfolio. There are numerous ways to take advantage of a temporary sector rotation, including many mutual funds that can achieve the sector rotation goal while further diversifying your holdings.

If you’re interested in having a conversation about the current market trends and what may lie ahead, please feel free to reach out 631-393-2888!

Craig J. Ferrantino, CWS®
Certified Financial Fiduciary®