Change to Quarterly Market Update
Beginning with this communication, I plan to reduce the length of our Quarterly Market Updates. For the past several months we have watched the click rates and it has become obvious to us that less is more. We know clients are inundated with information and content everywhere, so our hope is to make this piece shorter and more useful. Going forward, we will send two email updates per quarter. The first will be this quarterly market update shortly after each quarter closes. The second will be an equally short email explaining our quarterly trades the day they are executed. Essentially, it breaks this communication into two shorter pieces. We hope that more clients will read and engage with each update.
First Quarter 2022 Market Highlights
There’s no sugar-coating the news: the U.S. and global markets took a hit in the first three months of 2022, offering investors an experience that they haven’t been accustomed to during the long bull market: a bit of red ink on their investment statements.
Just about every investment declined in value in the first quarter. The Wilshire 5000 Total Market Index, the broadest measure of U.S. stocks, lost 6.18% since January 1. Looking at large cap stocks, the Wilshire U.S. Large Cap index lost 5.60% in the first quarter. The widely quoted S&P 500 index of large company stocks is down 4.95% so far this year.
As measured by the Wilshire U.S. Small-Cap index, investors in smaller companies experienced a 6.87% loss in the first quarter. The technology-heavy Nasdaq Composite Index is down 9.10% for the year, as tech stocks are, for the first time in a while, underperforming the market as a whole.
International investors were full participants in the downturn. The broad-based EAFE index of companies in developed foreign economies lost 6.61% in the first quarter. In aggregate, European stocks, whose companies are close to the action in Ukraine, are down 11.34% so far this year, while EAFE’s Far East Index has lost 6.68%. Emerging market stocks of less-developed countries, as represented by the EAFE EM index, also joined in the global decline, falling 7.32% in dollar terms in the first quarter.
In the bond markets, yields are going up. The coupon rates on 10-year Treasury bonds rose to a 2.36% rate, compared with 1.67% at this time last year. 3-month, 6-month and 12-month bonds are now offering real, tangible returns of 0.525%, 1.075%, and 1.570% respectively. Five-year municipal bonds are yielding, on average, 2.03%, up from 0.50% at this time last year.
These market declines are always a bit nerve-rattling, but if you look at a graph from the start of the year to the end of the quarter, the picture becomes a bit more positive. Nobody, of course, knows what’s going to happen next, but if you simply looked at the markets at the end of December and then checked back in on April 1, the one-quarter downturn would look like an insignificant blip in a generally positive 13-year upturn.
That said, there are enough clouds on the horizon to raise the possibility that we’ll have to endure further declines before the markets again find new highs. The most obvious example is the uncertainty that comes with a continuing war in Ukraine, and the sanctions and oil/grain supply disruptions associated with it. More optimistically, it is not easy to ignore the fact that the U.S. economy added 431,000 new jobs in March, after a gain of 678,000 in February. Oil prices are once again below $100 a barrel despite all the dire predictions of global shortages, and U.S.-based corporations experienced their most profitable year since 1950 in 2021. People who see the glass half-empty certainly have some data on their side, but so too do the optimists among us—and what’s interesting is that this has always been true.
Wilshire index data: https://www.wilshire.com/indexcalculator/index.html
Russell index data: http://www.ftse.com/products/indices/russell-us
S&P index data: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
Nasdaq index data: http://quotes.morningstar.com/indexquote/quote.html?t=COMP
International indices: https://www.msci.com/end-of-day-data-search
Treasury market rates: https://www.bloomberg.com/markets/rates-bonds
Bond rates: http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/ https://www.cnbc.com/bonds/