Welcome to the end of the first quarter of 2022. Let’s look at some quick market-related highlights.
- Well, for the first time in a long time I get to report none of the main US asset classes were positive for the first quarter. Feels bad, but I see it as a buying opportunity.
- Large Value was the leader of the negative classes with only being down .7% for the first three quarters. Mid and Small Growth tied for worst with losses of 12.6%.
- Updated 10-year annualized show a much prettier picture. Large Growth leads with annual growth of 17% and Small Value brings up the rear with annual performance of 10.5%.
- I’m not a sector guy, but figured I would share some quick information. Energy was the best performing sector for the first quarter. I know you are shocked. It had growth of 39%. Communication Services was the worst with losses of just under 12%.
- The S&P500 is currently down 5% for the year. It was down 13% at one point.
- The University of Michigan’s Consumer Sentiment Index (Go Bucks!) is near a low it hasn’t seen since 2008 and 2011. However, the lows in 2008 and 2011 saw S&P500 returns of 22% and 15% their respective next 12 months. Let’s hope the trend continues!
- March Unemployment is 3.6%. This is the lowest on the charts I reference, which go back to 1971.
- Wage Growth for the month was up 6.7%, which is well above the 50-year average of 4%.
- Core Inflation continues to be above the 50-year average of 3.8%. Core Inflation for February 2022 was 6.4%. Energy continues to be the outlier as it was up nearly 26% in February and its 50-year average is 4.8%. For comparison, Food was up nearly 8% in February and the 50-year average is 4%.
- I’ve already talked about oil. One thing to add is how it has been so volatile lately. On several occasions it has entered correction and bear territory (down 20%). Nothing has changed at the pump though.
- This is an important point. Even with increases in food and energy costs, they are still near historical lows of overall consumer spending. The data set I am looking at goes back to the late 50s.
- The Market is now expecting the Fed to raise rates to 2.8% by the end of 2023 and then to start cutting them the following year.
- The S&P500 has averaged growth of 5.8% during the last 6 interest rate hikes.
- Bonds continue to be a terrible place this first quarter. None of the major classes were positive. Until the bond market has more clarity on the Fed actions it will continue to be volatile.
- When we look at some of the broader asset classes, Commodities lead the year-to-date performance being up 25.5%. Small Cap brings up the rear with -7.5% returns.
- Just to give some perspective, the annual performance of these two asset classes from 2007 through 2021 are 8.7% and -2.6%. Oh, Small Cap is the one with the average return of 8.7% while Commodities have enjoyed negative annual returns of 2.6% over the previous 15 years. So, if you hear someone bragging about how well his Commodity returns are doing, feel free to ask him about the previous 14 years.
This seems like a good place to stop. One final point. A reminder the boring old 60/40 portfolio has enjoyed annual returns of 6.4% over the last 20 years (ending in 2020) while the average investor has enjoyed annual returns of under 3%. Hugging an index instead of trying to guess the market is still the best way to go, at least in my humble opinion.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.