March 2022 Market Commentary

Monthly Market Review

By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer

U.S. stocks shrugged off inflation and rising interest rates in March to post their first monthly gain of the year, even as bond prices continued to slide.

Investors drove U.S. stocks (VTI) up 3.3% for the month, while international stocks (VEA) eked out a .7% gain. Emerging-market equities (VWO), weighed down by accelerating inflation and monetary tightening by the Federal Reserve, fell 3.2%. With rising interest rates continuing to spook investors, bonds (BND) declined 2.8% in March, following dips of 2.1% in January and 1.1% in February. Municipal bonds (MUB) fell 2.6% for the month.

Stocks’ positive performance came amid signs that the economy was holding up reasonably well against economic headwinds. Nearly 700,000 jobs were created in February, and employment growth continued to fuel consumer spending even as prices rose. Businesses’ ability to pass price increases along to consumers was also seen as boding well for profits.

To be sure, markets had plenty to contend with in March. Russia’s invasion of Ukraine, along with the international sanctions levied on Russia as a result, are likely to keep inflationary pressure high for some time.

And while the Fed has pivoted to an inflation-fighting stance—ending its bond buying program, raising short-term interest rates by .25% and signaling that several more rate increases will occur this year—the international sanctions leveled at Russia are likely to keep inflationary pressure high for some time.

While the Fed controls short-term interest rates, longer-term rates are determined by the bond market, which takes into account anticipated future inflation and other factors. The 10-year Treasury yield jumped to 2.37% in March from 1.84% in February; the 10-year ended 2021 at just 1.5%. The 30-year Treasury yield ended March at 2.42%.

On the positive side, U.S. job creation remains strong. The economy added 431,000 jobs in March, as the unemployment rate fell to 3.6% from 3.8%. Average hourly earnings rose .4% for March and have increased by 5.6% over the past year.

Looking forward, there’s somewhat encouraging news on the broader economic front. One month ago, the Atlanta Fed projected that real gross domestic product (GDP), a measure of the country’s output of goods and services, would be flat in the first quarter of 2022. That represented a substantial letdown from the annual rate of 6.9% achieved in the fourth quarter of 2021 and the 2.3% increase in the third quarter. The Atlanta Fed now projects that first-quarter GDP will come in at .9%.

Markets are keeping a close eye on the war in Ukraine, which thus far has remained contained within that country’s borders. Investors are also watching the Fed intently as it attempts to cool inflation without tipping the economy into recession. Don’t be surprised if more market volatility lies ahead but rest assured that this too shall pass. When it comes to achieving long-term financial goals, patience is essential.

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