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Q1 2022 Market Recap

April 13th, 2022 | Written by

Volatility is a key theme early in 2022 as the S&P finished down 4.6% in 1Q22, and the U.S. Aggregate Bond Index was down 5.93%, reflecting accelerating inflation, monetary policy tightening from the Federal Reserve, and heightened geopolitical tensions following the Russian invasion of Ukraine. The yield curve continued to flatten throughout the quarter, with short-term interest rates rising rapidly as investors prepare for more 2022 rate hikes than originally anticipated, while longer-term rates reflect the uncertainty of how higher rates will impact long-term economic growth.

Large-cap stocks continued to outpace small-cap stocks, as concerns of inflation and higher rates had larger negative impacts on small-cap names. Value stocks outperformed growth stocks as value stocks were not as impacted by the January market sell off. At one point, growth stocks were down nearly 20% from January 1st but finished the quarter down 9.22% (Russell 1000 Growth Index) versus the Russell 1000 Value Index, which finished the quarter down 1.25%.

International developed and emerging markets also had a volatile quarter.  They initially sold off less than the U.S. markets as inflation has been more muted compared to the U.S. However, the Russian invasion of Ukraine resulted in a larger sell off in February, with both indices performing worse than U.S. large-cap stocks, but better than U.S. small-cap stocks.

As inflation accelerates and interest rates are expected to rise rapidly, many other economic indicators are being closely watched and remain strong.  Labor demand remains high and investors continue to monitor the impact of supply chain pressures on inflation.  The economy is expected to remain strong throughout the year, but rate increases will likely slow the economy toward the end of the year or in 2023.

Uncertainty has only grown over the first quarter and the impact of expected rate increases is debated among experts.  While the probability of a longer-term sell off, or even a recession, has grown, it’s still far from a certainty. We continue to advocate for a diversified portfolio that best prepares investors for a multitude of outcomes.  It’s hard to take a long-term view when volatility is elevated but maintaining a balanced investment approach is critical for producing superior risk-adjusted returns.

Index1st Quarter 2022Year-to-Date
Dow Jones Industrial Average-4.10%-4.10%
S&P 500-4.60%-4.60%
Russell 2000-7.53%-7.53%
Bloomberg Barclays U.S. Agg Bond-5.93%-5.93%
MSCI EAFE Index-5.79%-5.79%
MSCI EM Index-6.92%-6.92%

Sources: YCharts
Data as of March 31, 2022. Past performance cannot guarantee future results.

 

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