Hello all - we hope you had a nice March.
It was a remarkable turnaround for the markets, with stocks rising sharply in March. The Dow rose by 2.2%, the S&P 500 gained 3.7%, and the Nasdaq, which has a high concentration of technology companies, was up 3.5%.
The end of March also means the end of the first quarter, which was the worst quarter in two years. Over this period, the Dow fell 4.6%, the S&P lost 4.9%, and the Nasdaq suffered a 9.1% drop.
It was a remarkable turnaround for the markets, with stocks rising sharply in March. The Dow rose by 2.2%, the S&P 500 gained 3.7%, and the Nasdaq, which has a high concentration of technology companies, was up 3.5%.
The end of March also means the end of the first quarter, which was the worst quarter in two years. Over this period, the Dow fell 4.6%, the S&P lost 4.9%, and the Nasdaq suffered a 9.1% drop.
Here’s a closer look at the markets this month:
While stocks were a big story, the bond market was an even bigger story this month.
Interest rates on bonds shot higher at a pace only seen two other times this century.
Interest rates on bonds shot higher at a pace only seen two other times this century.
What this means is that our record low borrowing costs are rising very quickly. A good example is mortgage rates. It wasn’t long ago that average mortgage rates were below 3%, but they’ve very quickly jumped to almost 5%.
This also means the bond holdings in your portfolio have quickly fallen in value. When yields on bonds rise, their prices fall. Below is one of the bond index ETF’s we use a lot - it’s easy to see how much the prices have fallen.
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What caused the big swings in these markets this month?
For the stock market, a lot of attention was focused on the fighting in Ukraine. The outlook for the war improved as the month went on - whether that will turn out to be accurate or not remains to be seen - and it gave the markets a reason to rise. Wars have historically seen stocks fall initially, but rally later. That may be the case again here.
On the other hand, the big moves in the bond market were largely driven by the Fed.
The Fed held one of their policy meetings this month, where they announced an increase in interest rates. This is the first increase since the pandemic struck, when they lowered rates as a form of stimulus to make borrowing easier. Now they must raise rates to keep inflation from rising too high (although they are pretty far behind the curve here).
For the stock market, a lot of attention was focused on the fighting in Ukraine. The outlook for the war improved as the month went on - whether that will turn out to be accurate or not remains to be seen - and it gave the markets a reason to rise. Wars have historically seen stocks fall initially, but rally later. That may be the case again here.
On the other hand, the big moves in the bond market were largely driven by the Fed.
The Fed held one of their policy meetings this month, where they announced an increase in interest rates. This is the first increase since the pandemic struck, when they lowered rates as a form of stimulus to make borrowing easier. Now they must raise rates to keep inflation from rising too high (although they are pretty far behind the curve here).
Investors see many more rate increases coming this year. Current market projections show nine rate hikes of 0.25% this year, but there may be a few 0.50% rate hikes along the way.
These projections have bond investors worried rates will keep rising and bond prices falling, which helped cause the sell-off in bonds we saw this month.
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On the topic of inflation, the CPI inflation metric again came in at the highest level in 40 years.
Inflation at the business level (the PPI) stands at its highest level ever.
High oil and gas prices have played a large part in the increase in inflation. In the chart below, we can see how oil prices have shot higher this year.
Interesting to note, and probably not surprising, spikes in oil prices have often seen recessions follow.
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As for other economic data out this month, the manufacturing sector of our economy strengthened, but the service sector dropped sharply.
Retail sales were higher.
Durable goods - which are items with a longer life, like a phone or dishwasher - fell sharply last month.
Sentiment among the public ticked higher:
On the other hand, small business owners are much less optimistic.
The same small business survey noted that more and more businesses are worried about rising inflation.
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Where does the market go from here?
In the short term, we think the overall market looks a little expensive. The month closed with some selling and we wouldn’t be surprised to see this continue. It doesn’t look like a good time to put new money in the market in the short term.
We aren’t too optimistic on the longer term, either. The days of the market steadily rising are probably over as the Fed removes more and more of its stimulus and economic growth slows. There may be buying opportunities from time to time, but we think they will be short-lived.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
In the short term, we think the overall market looks a little expensive. The month closed with some selling and we wouldn’t be surprised to see this continue. It doesn’t look like a good time to put new money in the market in the short term.
We aren’t too optimistic on the longer term, either. The days of the market steadily rising are probably over as the Fed removes more and more of its stimulus and economic growth slows. There may be buying opportunities from time to time, but we think they will be short-lived.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
