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Q1 2022 Market Commentary
The first quarter saw a significant increase in market volatility. Russia’s invasion of Ukraine, piping hot inflation, and rapidly rising interest rates all came together to push markets lower across the board. Global economic sanctions levied against Russia led to steep declines in the ruble as Russia’s capital markets ceased operating; oil and other commodities prices soared, fueling already high global inflation. Here at home, February’s monthly Headline CPI reading of 7.9% in year-over-year inflation led the Federal Reserve to sharpen its hawkish, anti-inflation stance and raise interest rates 0.25% at its March meeting. The 10-year U.S. Treasury, which began the year at 1.52%, rose sharply to finish the quarter at 2.32%.
Subsequently, most major asset classes posted negative returns for the quarter. The MSCI All-Country World Index returned -5.26%; U.S. stocks posted virtually the same return at -5.28%. The S&P 500 faired only slightly better, returning -4.6% for the quarter. Notably, 9 out of 11 sectors posted negative returns for the quarter; only energy (+39%) and utilities (+4.8%) posted positive gains and were two relatively bright spots in an otherwise dour quarter. Emerging Markets posted slightly lower returns of -6.92%. Bonds offered no respite from the quarter’s declines; the Barclays US Aggregate Bond Index returned -5.93%, giving up some of its abnormally high, pandemic-fueled gains from the previous two years. Non-U.S. bonds posted similarly negative returns with the Barclays Global Ex-US Bond Index returning -6.28% for the quarter.
Despite the first quarter’s broad declines, we believe the quarter offers three major lessons for investors.
1 Russell 3000 Total Return
2 MSCI Emerging Markets Total Return
2 See “The Ukraine Crisis: Three Lessons for Investors”
4 YCharts, Inc.
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