First Quarter 2022 Lessons Learned--or Relearned

Markets eventually get tested – The market had been on a great run in the 7 quarters leading up to this year. The S&P 500 had risen almost 70% from its pandemic lows in March 2020 and reached an all-time high of 4,766. It then proceeded to lose 11% in the next 10 weeks as investors finally acknowledged interest rates were likely to increase and geopolitical risk entered the picture. What’s important to remember through is that despite the emotion and ugliness…this is normal. Healthy markets fluctuate, sometimes by a lot, as market participants update assumptions, evaluate fundamentals, take gains, and/or rotate into other asset classes. Investing in equities is essential for almost all portfolios, but it’s important to know that double digit declines will eventually happen.

Stock and bond prices sometimes move in tandem – A rule of thumb in finance is that the prices of high-quality bonds (especially government bonds) tend to go up when equity goes down. The idea is that investors are fleeing risk (equities) and buying safety (government debt). This was not the case in Q1 2022. The largest driver of investor angst, and lower equity prices, was higher interest rates which also causes bond prices to fall. It was a painful combination for investors.

The best days in the market usually happen when it feels the worst – The S&P 500 hit -11% YTD on March 8 but rallied back to -4% by March 28. On those 14 trading days, the market gained more than 1% 6 times, including 3 days which it gained more than 2%. The lesson? Stay invested so you don’t miss those days!

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.