-7.24% – U.S. momentum stocks
-4.45% & -15.96% – Emerging markets (small & profit) stocks
-7.30% – International profitability stocks
-4.61% – U.S. large stocks -7.94% – Global high yield bonds
-0.11% & -13.87% – U.S. small (value & profit) stocks -7.12% – CA municipal bonds
-4.36% – U.S. Hi Relative Profitability -4.88% – Core bonds
13.37% – U.S. momentum stocks
14.58% & -10.31% – Emerging markets (small & profit) stocks
13.54% – International profitability stocks
26.40% – U.S. large stocks 4.78% – Global high yield bonds
38.80% & -5.80% – U.S. small (value & profit) stocks 1.69% – CA municipal bonds
23.95% – U.S. Hi Relative Profitability -0.34% – Core bonds
As the terrible events unfolded in Ukraine we were all faced, in the short term, with considering global impacts and worst case scenarios.
Market volatility spikes with uncertainty and we experienced an immediate, but not overwhelming, spike at the end of February only to head back to very similar levels just two weeks later.
As events have played out, and worst case global impacts seem to have been avoided, volatility receded and markets stabilized (volatility down about 52%). The U.S. closing low was back on March 8th and we’ve reinflated to where we were at the end of October 2021. We were a fair stretch higher than we are now at the turn of the year, but with unknowns attached to increases in interest rates to fight inflation we might feel pretty decent about current levels.
Baskets of stocks with more global risks attached (small international and emerging markets especially) got the hit much harder than domestic stocks. If some uncertainty lingers, and the worst case doesn’t materialize, those stocks might now be selling at a bit of a bargain.
We were holding investor cash, or slowly dripping cash on a monthly basis, up until a few weeks ago but have since started to put a bit more to work.
Interest rate increasing cycles have caused recessions in the past, but at the moment recession seems improbable. Inflation may persist and The Fed may need to tighten in the near-term, but inflation may also moderate due to natural reactionary forces.
We certainly don’t need to be in the position where we are with respect to excessive stimulus having been dumped by our government in reaction to Covid (and disincentive to work, and a political stake in the ground against fossil fuels even though we’ll need them for decades to come. The people with the least advantages, who benefit most from positive economics, are being hurt the most by these politics).
We may yet get through this period as corporate and personal balance sheets are relatively strong, while we also benefit from best ever systems and information flows. Our economy is presently solid.
Bonds have been decently battered by increases in interest rates but investors have historically been made whole, or even rewarded, for staying the course. Recovery can occur in a relatively short period of time. We’ll see if history repeats but we don’t want to be in a position to miss a recovery in these markets by guessing when to get out and come back in.
As always, we appreciate the trust you put in us to manage your investments. We are always available for a conversation should questions arise or you simply desire to connect with us for a few minutes to just say hello.
Erik S. Wolfers, MBA, CFP®