Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
Stocks and bonds struggled in April as inflation and rising interest rates continued to weigh on the markets. U.S. stocks (VTI) fell 9.06% over the course of the month, while international stocks lost 6.86% and emerging market equities (VWO) declined 5.81%. Domestic bonds (BND) dropped 3.95%, while municipal bonds (MUB) lost 2.54%.*
Much of the stock market’s decline could be traced to megacap tech names like Netflix, Amazon, Google and Tesla. The S&P 500, which is heavily weighted toward such companies, declined by 13% in the first four months of 2022. The tech-heavy Nasdaq Composite index was down 22% over the same period. Stock market corrections, defined as broad declines in major indexes of 10% or more, can be alarming, but it’s important to remember that they are quite common, occurring on average about once every two years.1
Bond performance, meanwhile, has been impacted by persistently higher inflation levels and expectations of significantly higher interest rates. When a bond’s price falls, its yield rises, so in something of a silver lining, the 10-year Treasury bond yield recently hit 3% for the first time since 2018.
Inflation remains a significant headwind for both stocks and bonds. As of March, the Consumer Price Index had risen 8.5% over 12 months, its highest rate since 1981. Interest rates have risen rapidly alongside inflation, with the 10-year Treasury yield jumping half a percentage point in April. It ended the month at 2.88%, up from 1.5% at year-end 2021.
April brought news that the broad economy lost steam in the first quarter, with output of U.S. goods and services shrinking by 1.4%. It was the first quarterly contraction since the pandemic-induced recession two years ago. One silver lining in the gross domestic product (GDP) report was that consumer spending, the economy’s main driver, rose at an annual rate of 2.7%, up a hair from the fourth quarter. In addition, the report showed that businesses continued to invest heavily in equipment and research and development.
Employment continued its rapid recovery in April as payrolls grew by 428,000. The unemployment rate remained steady at 3.6%, and wages rose .3% and are up 5.5% from a year ago.
Against that mixed backdrop, the Federal Reserve remained focused on fighting inflation. It raised short-term interest rates by .25% in April and by another .50% early in May. All told, markets expect the Fed to raise rates by 2.5 percentage points in 2022, bringing the rate to 2.82% by the year’s end.2
Looking ahead, the Atlanta Fed sees economic growth picking up steam in the second quarter: It’s forecasting a GDP increase of 2.2%.
The economy and markets are undergoing a significant shift as they adjust to interest rates last seen three and a half years ago and inflation rates last seen four decades ago. The shift will take time to play out, and further market volatility should be expected. It’s a good time to stay focused on two key requirements for long-term investing success: maintaining a mix of investments that’s appropriate for your goals, risk tolerance and investing time horizon, and keeping a cool head. Don’t hesitate to contact your financial advisor with any questions.
Major Market Index Returns Period Ending 5/1/2022 (Annualized)
Selections include widely available ETFs. Multi-year returns are annualized and net of management fees, but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes comprise stocks and bonds, as represented by VT (Vanguard Total World Stock Index Fund ETF) and BND (Vanguard Total Bond Market Index Fund ETF). Multi-year returns are annualized. Performance is net of all management fees but does not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.
*The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate so that investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. To get details on the ETF’s performance, including standardized returns as of the most recent quarter-end, and on its expenses and fees please visit:
Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.
The S&P 500 Index is a market-value weighted index provided by Standard & Poor’s and is comprised of 500 companies chosen for market size and industry group representation. The Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. Individuals cannot invest directly in an index. Index returns do not include fees or expenses. Investing in securities involves risk of loss, including loss of principal.
This commentary is limited to the dissemination of general information pertaining to our investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but we do not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
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