The drumbeat since the beginning of the year has been loud and strong. Run for the hills! As I have reported since January, the news has pointed consistently to dire straits. After two years of huge fiscal/monetary stimulus to protect the economy from the effects of the pandemic, we see a hawkish Fed telegraphing a new monetary tightening cycle to cool an overheating economy, increasing inflationary pressures, persisting supply chain issues, and the Russia/Ukraine conflict; plenty of reasons to be a bear!
But, running for the hills is not the answer! No one can outguess the market! As you can see from the chart below, except for bonds that have been on a consistent downtrend from the beginning of the year (the black line, AGG, and the red line LQD), despite the downtrend, there have been pockets of recovery that elicited some hope for a recovery. In fact, if you were clever (or lucky!) enough to have bought the S&P 500 (IVV, the green line) at its low on March 8 and sold it on March 29, you could have garnered an +11.3% return; such is the nature of volatile markets!
What continues to be most interesting to me is how the bond market (AGG, -8.2%) has “underperformed” the stock market (IVV, -7.1%) on a year-to-date basis. For accounts with a long-term focus that could tolerate more risk, D&A took a position to underweight core bonds by up to 10% of target and it has worked out on a narrow basis, but other equities (e.g., small cap, international developed, and emerging market equities) have taken a bigger fall leading to some total portfolio underperformance on a year-to-date basis. As always, we expect a long-term focus will reward those investors who stay the course with the diversifying equity sectors that are currently out of favor.