5 charts on the US stock market's April downdraft

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For stock investors, April may not have been “the cruelest month” but it turned out pretty darn bad.

It may have seemed in late March that the worst of the selloff to start 2022 was in the rear-view mirror. Yet now amid signs the Federal Reserve will be even more aggressive in raising interest rates, stocks have suffered renewed declines that left broad market benchmarks flirting with their lows for the year.

Through April 26, the Morningstar US Market Index lost 8% for the month, bringing the year-to-date declines to just under 13%.

As was the case during much of the first quarter, big name technology and communications stocks such as Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA) led the broader market lower. While this meant continued poor performance for companies landing in the growth category bucket, value names have provided shelter from the storm in recent weeks. Consumer stocks, often seen as playing a defensive role in a portfolio, lived up to their reputation as Johnson & Johnson (JNJ) and Procter & Gamble (PG) both rose this month.

There remain risks for the months and quarters to come, including inflation, rising interest rates, and geopolitical ruptures such as Russia’s invasion of Ukraine.

The good news for investors looking to put money to work: Stocks covered by Morningstar analysts are now the cheapest they’ve been since the pandemic-driven bear market.

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With the latest downward slide, stocks neared their worst levels of the year. On March 14, the Morningstar US Market Index was down 13.6% from its last high on 3 Jan. That’s well into so-called correction territory, which is a decline of 10% or more from the most recent peak.

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Underneath the hood, there’s been a continued, considerable divergence among stocks based on whether they land in the growth category or value category. So far in April, growth stocks have lost 14.9% while value has shed 2.9%.

Whether a company lands in Morningstar’s value, core, or growth categories depends on the “style score” assigned to each stock. That is based on metrics such as growth rates for earnings, sales, book value, and cash flow. In addition, it factors in dividend yields and relative valuations such as the price/projected earnings ratio, price/book, price/sales, and price/cash flow.

Growth stocks have higher readings on earnings and sales ratios, for example, and low dividend yields. Companies that end up at the lower end of the spectrum on these metrics land in the value category, and those in the middle are considered “core.”

For the trailing 12-month period ending April 26 the Morningstar US Growth Index lost 14.9%, while the Morningstar US Value Index gained 7.1%.

April’s value versus growth divergence extends a performance reversal that started late last year when, after a long period of underperformance, value stocks started posting returns that topped those of growth companies.

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Drilling down further, April brought losses across the board to every sector except consumer defensive. The Morningstar US Consumer Defensive Index rose 3.4%, led by Johnson & Johnson, which gained 4.2%, and Procter & Gamble, which rose 5.2%.

Renewing losses seen earlier in 2022, the technology and communication services sectors dragged down the market in April. The Morningstar US Technology Index fell 13%, and the Morningstar US Communication Services Index lost 13.7%. Microsoft has been the leading decliner, down 12.4% as of April 26.

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The technology sector was responsible for 3.3 percentage points of the Morningstar US Market Index’s 8% drop for the month, dragged down by Apple, off by 10.2%, and Nvidia, which plummeted 31.1%.

Led by losses in Netflix (NFLX), which plunged 47% in April alone, the communication services sector contributed 1.2 percentage points to the market’s total loss this month.

Amazon (AMZN), which fell 14.5%, and Tesla (TSLA), down 18.7%, were major contributors to the decline in the consumer cyclical sector.

For investors able to put money to work, stocks now trade at much more attractive prices. The broad market is at an approximately 6% discount to Morningstar analysts’ fair value estimates versus the 13% premium at the end of 2021. The last time the market was considered nearly this cheap was during the coronavirus recession.

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