Let’s have a look at the current state of the market – April 2024.
Current state of the market – April 2024: 10 Year Bond Yields, NASDAQ, S&P500 and the ASX200
There is only one real right story right now and that is the Bond market. The bond market is a major influence on the stock market because it is essentially the foundation input for valuing stocks. Bond yields have been rising since the start of the year. The stock market has tried to ignore that until the start of this month when the NASDAQ started falling.
Incidentally, it started falling before the S&P 500. The Dow Jones started falling after that. I would argue the DOW is now irrelevant as an index.
The US had expectations for a number of rate cuts this year based on inflation collapsing. This was the thesis for the stock market rise. The bond market wasn’t buying it though. This is the main reason for the divergence (that and the fact that the Nvidia result was incredible providing a lot of positive sentiment). Recent data suggests the bond market was right and the market was wrong – the last 1%-2% of inflation is proving difficult to shift. Expectations are now adjusting, and we are seeing this play out in the stock market.
The S&P/ASX 200 index experienced a heavy sell-off on Friday. Interestingly it did stage a substantial bounce in the afternoon off the 144 day moving average at ~7500 points. Despite falls in the US on Friday night, the futures market is suggesting we will open 27 points higher on Monday morning. Should the market continue to be hit with selling, the 7400 level could come into play.
That is where we are today.
Where do we go from here?
I don’t tend to play the forecasting game but I think a collapse isn’t likely at this stage and it’s more a rebasing of expectations for what happens next with inflation and hence bond yields. The Israel situation doesn’t help. The risk of oil disruptions can be seen in an increasing oil price which is inflationary. Bond yields have risen quite steeply this year though and there’s always a risk that will “break” something in the banking sector. That would increase the chance of a collapse greatly.
The positive sentiment has gone for now and the focus is clearly back on inflation. Anything positive in that regard should provide the market with some welcome relief from these falls. The inverse would be true. In combination with moderating inflation, Nvidia could once again provide the spark. It has a history of beating estimates and if it can do so again we could be off to the races once-more. We’ll have to wait until May 23rd for that possibility though.
Current state of the market – April 2024
Disclaimer: This information is provided purely for educational purposes. It takes no account of an individual’s personal financial circumstances and hence can in no way constitute financial advice. The above data may be subject to errors or inconsistencies for which the author takes no liability. It is imperative that all investors do their own research or if they need advice, seek it from a qualified financial adviser.