Stocks declined across the board in the first quarter. Large domestic companies as measured by the Standard & Poor’s 500 dropped 4.9%. The Russell 2000, a measure of smaller domestic companies, was off 7.8%, while the Nasdaq Composite, heavily weighted in technology firms, declined 9.1%. Foreign companies, generally speaking, also fell with the Dow Jones World Index (ex US) down 6.6%.
Heading into 2022, investor sentiment turned decidedly negative. Investors faced daunting inflation numbers and a promise of Fed tightening, as well as the intensifying Russia/Ukraine geopolitical threat. Selling pressure picked up, hitting large technology firms especially hard. Indeed, the Nasdaq Composite found itself in bear market territory (20% off the recent high). Putin eventually pulled the trigger, and the Ukraine invasion commenced. In March, the Fed terminated the bond buying program (QE) and raised the fed funds rate by 25 basis points, with promises of further rate hikes throughout the year. Interestingly, we then saw equity selling pressure start to abate, as investors began bargain hunting. By the end of Q1, the stock market had recovered somewhat, at least from the worst of it. That said, the Standard & Poor’s 500 turned in the first negative quarter in the last two years.
So where are the markets heading from here? Of course, short-term market movements are impossible to predict with consistent accuracy. With uncertainties surrounding an increasingly brutal Russian incursion, the worst inflation in over forty years and central banks struggling to gain control, investors could hardly be faulted for harboring a pessimistic outlook. Add to that the inverted yield curve, and life as we know it must surely be over. On the other hand, corporate data is largely positive with better than reasonable earnings and strong employment numbers. At 3.6%, the unemployment rate would typically be considered “full employment.” There are those who maintain some confidence that Fed Chair Powell can orchestrate a soft landing, and that a tolerable resolution can be reached to end the violence in Ukraine. Overly optimistic? Perhaps. But throughout history, stranger things have certainly happened. The reality is, the successful long-term investor does not waste time (or money) wagering on short-term prognostication. Rather, the savvy long-term investor maintains a carefully crafted portfolio, adhering to a Target Asset Allocation with the expected return and expected volatility characteristics consistent with that investor’s unique goals and objectives.
We do expect market volatility, perhaps to the extreme, to continue, and staying in close contact with your trusted fiduciary advisor should be very helpful. As such, we welcome your calls, emails, texts, etc. And, as always, we adhere to our discipline of strategic asset allocation and style diversification; a strategy designed to mitigate overall portfolio volatility and enhance long-term returns.