1st Quarter Market Update
After a sharp selloff in most global indices to start 2022, there was a brief recovery at the end of the first quarter as investors weighed the impact of rising interest rates, global unrest, and inflation. However, April has brought renewed concerns about the domestic economy and the impact of potentially significant increases in interest rates.
U.S. Market Indices
After negative results in January and February, the S&P 500 rose as the end-of-quarter neared, and then declined again in April. Last week, however, Factset reported that of the 55% of S&P 500 companies that have reported Q1 earnings, 80% reported beating their earnings’ estimates. That said, they are beating their estimates by a smaller amount than the five-year average.
In fixed income markets, yields have been on the rise this year, with many Treasuries now hovering around 3%. In addition, the recently inverted yield curve, which is when 2-year Treasury notes have a higher yield than 10-year notes, is creating some concern. Historically, when the yield curve has inverted, there’s been a good chance of a recession in the following two years.
Inflation
From industrial supplies to food, consumer discretionary items to services, prices in almost all industries have increased by above average rates. This was evident in the February Consumer Price Index (CPI) data, which showed inflation rising 7.9%. Data for March 2022, released in April, showed an even larger increase of 8.5%, marking the greatest 12-month advance since December 1981.
Compared to a year ago, consumer prices for energy increased 32%, shelter increased 5%, and food increased 8.8% (not seasonally adjusted).
Employment Data
New jobs data from early April showed 431,000 jobs added in March, slightly below the 490,000 estimate. The unemployment rate declined to 3.6% as corporate America continued its hiring spree with notable strength in the leisure and hospitality sectors.
Overall, job growth averaged 562,000 per month in the first quarter of 2022, with employment in construction continuing to trend up in March, returning to its February 2020 level.
First Quarter Takeaways
Q1 started on a weak note, but U.S equity indices rebounded in March, posting their first monthly gains of the year. Although concerns about the impact of the war on the global economy were greater earlier in the year, many speculate that the international conflict is now fully priced into financial markets.
The prevailing theme at this point will continue to be one of interest rates and geopolitical fluctuations. Although there is rising concern about a potential bear market, analysis from the Schwab Center for Financial Research reminds us that since 1974, only five market corrections have become bear markets. Even if we do see a bear market, they’ve averaged about 15 months since 1966, much shorter than bull markets, which average over five and a half years. The most recent bear market (and also the shortest in history), induced by the onset of the COVID-19 pandemic in 2020, lasted only 33 days.
That said, we take the long-run view of investments for our clients and believe it is better to stay invested throughout market downturns than it is to try and avoid them by selling your investments and buying them back. That said, we know the ups and downs of the market can be uncomfortable, and we recognize that part of the service we provide is to help our clients get through these challenging market cycles, which we stand ready to do.