The first quarter was a rough ride for bonds and stock investors as the impact of inflation, pandemic, and war lingered. The least affected U.S. assets across the fixed income and equity market was a decline of 4.9% in the S&P index and other speculative investments.
The loss was inevitable
Treasuries saw a decline of 5.6 % and 7.8 % in investment grade. As per data compiled by Bloomberg, the best returns have been paltry since 1980, and specific sectors saw far worse periods in between. Excluding the commodities that soared, the equities have been futile for investors who tried to protect themselves from inflation caused by the global storm.
According to Fiona Cincotta, a senior analyst with City Index, a combination of bad timing caused by high inflation, Federal Reserve tightening policy, and the war caused by Putin means more bad news for oil and energy prices.
After the Federal Reserve hiked interest rates for the first time since 2018, the first quarter saw bond and equity market value erase by more than $3 million. The traders quickly adjusted to the central bank’s hawkish position. The treasury yields got inverted in parts, and long tenor rates fell compared to short dates, warning investors that the economy may head towards recession.
The stocks started severely, with the S&P 500 index suffering from a peak to bottom slide of 13%, while small-caps Russell 2000 and Tech-based Nasdaq 100 also entered into a bear decline with a 20% fall. Due to continued optimism that equities may provide a hedge against inflation, the stock market bounced back in the past two weeks, outperforming bonds as per data till March 30.
For most of the investors who had parked their funds in stocks and bonds were the worst performance was a new experience for them. The famous 60/ 40 portfolio strategy that aims to benefit from diversification, balanced mutual funds, and pensions suffered after a concerted sell-off.
Commodities were the only significant asset that was booming. From oil to wheat, steel to copper, the prices of basic materials surged as the supply chain crunch followed by the Ukraine war exacerbated the situation. The first quarter was the best quarter since 1990, with Bloomberg Commodity Index jumping by 25%.
For an asset allocator, it can be disastrous if they miss out on a rally in one central area of the market when the best-performing asset was up to while all other sectors returned losses. According to the Chief Investment Officer of Glenmede, Jason Pride, the market performance will hinge mainly on Federal Reserve monetary policy.
Jeff Mortimer, investment strategy director at BNY Mellon Wealth, is optimistic and feels that the S&P 500 recovery of half of its losses shows its resilience.
