Losing 5% Was Best You Could Do in Stocks and Bonds This Quarter

 
image

(Bloomberg) — War, inflation and the lingering impact of a global disease made the first quarter a historically rough one for stock and bond investors.

Across equity and fixed-income markets broadly, the least-bad performance among U.S. assets were declines of 4.9% in the S&P 500 and speculative credit. They were followed by a 5.6% fall in Treasuries and a 7.8% slide in investment grade. Not since 1980 has the best return among those four categories been so paltry, data compiled by Bloomberg show.

Numerous periods have obviously been far worse for specific sectors. This quarter’s retreat in equities pales in comparison to the 20% drubbing they took at the start of 2020. But viewed as a whole — and leaving out commodities, which soared — the new year has been a futile one for an investor seeking shelter from the global storm.

Things “really came together in a cocktail of bad timing between the high inflation, the Fed looking to tighten monetary policy in a hawkish manner,” said Fiona Cincotta, senior market analyst at City Index, by phone. “And throw into that the uncertainty for Putin’s war and what that means for energy and oil prices, which still need to ripple out in the economy, there is definitely more bad news to come.”

More than $3 trillion was erased from bond and equity values in the first quarter as the Federal Reserve raised interest rates for the first time since 2018. With traders quickly adjusting to a more hawkish central bank, parts of Treasury yield curves inverted, with long-dated rates falling below short-dated ones — a development that many investors view as flashing warnings that the economy may head into a recession.

Stocks also got off to a rough start. The S&P 500 suffered a peak-to-trough slide of 13% at its worst, while the tech-heavy Nasdaq 100 and the Russell 2000 of small-caps each entered a bear-market decline of 20%. Thanks in part to growing optimism that stocks may serve as a hedge against inflation, the market bounced back in the last two weeks and generally outperformed bonds, based on data through March 30.

The dire performance was a new experience for the majority of investors who park their money in stocks and bonds. The concerted selloff is particularly bad news for the popular 60/40 portfolio strategy that aims to perform well through the benefit of diversification and is widely followed by balanced mutual funds and pensions.

A Bloomberg model tracking a portfolio of 60% stocks and 40% fixed-income securities dropped 4.6% as of Wednesday, all but certain to notch the first quarterly loss in two years.

“No one’s happy, right?” Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management, said by phone. “Interestingly, from a relative perspective, you’ve been even happier owning stocks than bonds, and I think it means you need to complement those with real assets.”

The only major asset that’s booming is commodities. From oil to copper to wheat, the prices of basic materials have surged as a supply crunch was exacerbated by Russia’s invasion of Ukraine. The Bloomberg Commodity Index jumped 25% for the best quarter since 1990.

Missing a rally of that size in one area of the market can be disastrous for an asset allocator. This was the first time in at least four decades when the best-performing asset was up that much while all the other returned losses.

To Jason Pride, chief investment officer of private wealth at Glenmede, how markets will perform from here largely hinges on the Fed’s path for monetary policy.

“It’s a function of the Fed taking the punch bowl away,” Pride said by phone. “We’ve kind of gone through the the Russia-Ukraine correction and the rebound. But that’s basically opened us up to the Federal Reserve being able to hit this market pretty hard. And they have to in order to establish their credibility on the inflation fighting front.”

Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management, is optimistic, saying the S&P 500’s ability to recover more than half its losses is a sign of resilience.

“As you get into late 2022 and into 2023, it’s possible that you’re in a lower inflationary environment naturally, both because of what the Fed has done, and perhaps supply chains get better, perhaps omicron or Covid-19 get put behind us,” he said in an interview on Bloomberg Radio. “And you might see yourself in a world in which you have low inflation, decent growth, a Fed which has most of its work behind it, and decent valuations in stocks.”

©2022 Bloomberg L.P.

 
Trending Ideas

Featured Stocks On The Move

Daily Rundown
  • Sportswear, Blockchain, Medical, E-commerce

    On Holding AG (ONON) On Holding AG is a premium sportswear company specializing in high-performance running shoes and apparel. Known for its innovative cushioning technology, the company caters to athletes... Read More

  • Chemicals, Venture, Energy, Insurance

    Flexible Solutions International Inc. (FSI) Flexible Solutions International Inc. develops and manufactures biodegradable and environmentally safe chemicals. The company specializes in water and energy conservation products, serving industries like agriculture... Read More

  • Data, Blockchain, Education, Semiconductors

    LiveRamp Holdings, Inc. (RAMP) LiveRamp Holdings, Inc. specializes in data connectivity and analytics, helping businesses unify customer data for personalized marketing strategies. Its platform enables secure data sharing and drives... Read More

  • Services, Renewable, Batteries, Midstream

    Ranger Energy Services, Inc. (RNGR) Ranger Energy Services, Inc. provides well service solutions to the oil and gas industry. The company specializes in high-spec rigs, well maintenance, and completion services,... Read More

  • Analytics, Manufacturing, Appliances, Energy

    ExlService Holdings, Inc. (EXLS) ExlService Holdings, Inc. is a leading provider of data analytics and digital operations solutions. The company helps businesses enhance decision-making, streamline operations, and achieve transformative growth... Read More

  • Wellness, Energy, Construction, Exploration

    LifeVantage Corporation (LFVN) LifeVantage Corporation is a wellness company focusing on nutrigenomics to improve health and longevity. It offers science-backed dietary supplements and skincare products aimed at optimizing health and... Read More

  • Housing, Biotech, Technology, E-commerce

    Fannie Mae (FNMA) Fannie Mae provides liquidity and stability to the U.S. housing market by purchasing mortgages from lenders, enabling them to offer more loans. The company plays a critical... Read More

  • Aviation, Medical, Biotech, Biopharmaceutical

    FTAI Aviation Ltd. (FTAI) FTAI Aviation Ltd. specializes in acquiring, leasing, and managing aviation assets, including aircraft and engines. The company provides innovative solutions to airlines and operators, optimizing performance... Read More



Top 3 Stocks in Leading Sectors
  • 3 Technology Stocks To Buy Now

    BTC Digital Ltd. (BTCT) BTC Digital Ltd. is engaged in cryptocurrency mining and blockchain technology development. The company leverages advanced infrastructure to produce digital assets and support the growth of... Read More

  • 3 Distribution Stocks To Buy Now

    DNOW Inc. (DNOW) DNOW Inc. is a leading distributor of energy and industrial products, offering supply chain solutions and services. Serving oil, gas, and industrial sectors, the company ensures operational... Read More

  • 3 Energy Stocks To Buy Now

    EQT Corporation (EQT) EQT Corporation is a leading natural gas producer, operating in the Appalachian Basin. The company leverages advanced technologies to optimize energy production and deliver sustainable solutions to... Read More

  • 3 Consumer Stocks To Buy Now

    Playa Hotels & Resorts N.V. (PLYA) Playa Hotels & Resorts N.V. owns and operates all-inclusive beachfront resorts in prime locations across the Caribbean and Mexico. The company offers luxurious accommodations,... Read More

  • 3 Aviation Stocks To Buy Now

    Kratos Defense & Security Solutions, Inc. (KTOS) Kratos Defense & Security Solutions, Inc. specializes in developing and deploying advanced defense technologies, including unmanned systems, satellite communications, and cybersecurity solutions. The... Read More

  • 3 Apparel Stocks To Buy Now

    V.F. Corporation (VFC) V.F. Corporation is a global leader in branded lifestyle apparel, footwear, and accessories. With a diverse portfolio of iconic brands like Vans, The North Face, and Timberland,... Read More

  • 3 Defense Stocks To Buy Now

    FTAI Aviation Ltd. (FTAI) FTAI Aviation Ltd. focuses on acquiring, leasing, and managing aviation-related assets, such as aircraft and engines. The company provides tailored solutions to airlines and operators, ensuring... Read More

  • 3 Energy Stocks To Buy Now

    Antero Resources Corporation (AR) Antero Resources Corporation is a leading natural gas and liquids exploration and production company. Operating primarily in the Appalachian Basin, the company focuses on responsible energy... Read More