The stock market fell 5% in April

Financial markets experienced a setback in April, marking a disappointing retreat following the strong performance seen in the first three months of 2024. One factor pressuring the market was the release of economic data indicating persistent inflationary pressures, dampening hopes for imminent interest rate cuts by the Federal Reserve.

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According to data, stock funds declined by 5% during the month, reducing the year-to-date gain to 3.6%. Similarly, international-stock funds saw an average decline of 2.8% for the month, trimming the year-to-date gain to 2.5%.

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Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance in Charlotte, N.C., commented on the situation, stating, "Given the elevated levels of inflation—and this being the new normal for 2024—the market will need to adjust its expectations regarding Fed rate cuts."

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While Zaccarelli acknowledged the possibility of a single rate cut by the Fed, he emphasized that multiple cuts were unlikely unless the economy entered a recession. Despite this, he remained optimistic about stocks, foreseeing continued economic expansion and corporate profit growth.

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Within the realm of fund categories, large-cap growth funds, predominantly comprising large tech stocks, experienced a setback in April. Lipper's large-cap growth category declined by 4.7% for the month, yet maintained an impressive year-to-date gain of 7.2%.

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Bond funds also faced declines in April, particularly those focused on investment-grade debt, the most prevalent type of fixed-income fund. These funds experienced an average decline of 2.4% for the month and are down by 2.9% year-to-date.

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In a financial flashback, Simon Constable revisited historical headlines from The Wall Street Journal, focusing on May 1984. At that time, just after Wall Street had emerged from stagflation, Continental Illinois, one of the nation's largest banks, faced a crisis. The bank had extended numerous risky loans to the oil-and-gas industry, contributing to its financial woes. As the crisis unfolded, stock investors grew apprehensive, leading to a 9% decline in the S&P 500 between December 1983 and May 1984.

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By early May, depositors began withdrawing their funds rapidly, causing the bank to lose 30% of its funding. Eventually, the Federal Deposit Insurance Corp. intervened to prevent a failure, guaranteeing all of the bank's creditors and extending a $2 billion loan. This event marked a pivotal moment in American finance, underscoring the concept of "too big to fail" and reshaping perceptions regarding government intervention in the banking sector.

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