* U.S. equities before and after the March FOMC meeting
* A differentiated view and alternative assets can add value in difficult markets
March 2022 Returns:
Domestic equity returns for the month can best be looked at before and after the March 16th Federal Reserve (“FOMC”) meeting.
Pre-FOMC, March 1 through March 14 the S&P 500 was down -2.5%.[ix] As the Russia/Ukraine war intensified, crude oil hit a 13-year high of $130/barrel on March 7 with Europe and the U.S. considered banning all Russian oil imports.[x] On March 10, the February Consumer Price Index increased +0.8% m/m and +7.9% y/y, the highest rate since 1982.[xi] On March 15, the February Producer Price Index showed prices rising +10.0% y/y, tied with January 2022 for the biggest 12-month move since the current series began in 2011.[xii]
On March 16, the Federal Reserve raised interest rates by +0.25%, the first rate hike since 2018. In the press conference that followed the announcement, Federal Reserve Chairman Powell discussed in soothing tones[xiii] the timing of potential future rate hikes and that the Federal Reserve members are working on a plan to start to reduce the nearly $9 billion balance sheet.[xiv] “The Fed has got your back” seems to have become the dominant market narrative.
Post-FOMC, March 15 through March 31 the S&P 500 was up +8.6%.[xv] Despite reports of persistent inflation and an inversion in the yield curve, markets appeared to be encouraged that the next FOMC meeting would not take place until May 3-4. The war continued. On March 25, the University of Michigan Consumer Sentiment Index hit an 11-year low as consumers deal with the highest inflation in 40 years.[xvi] On March 29, the yield on the 5-year U.S. treasury surpassed the yield on the 10-year U.S. treasury, something that has not happened since 2006, before the Great Financial Crisis. In normal markets, as bond maturities lengthen in time, bond yields increase. An inversion in the yield curve historically has been one of the most reliable indicators of an impending recession.[xvii] Finally, on March 31, the Bureau of Economic Analysis released the February Personal Consumption Expenditures Price Index, the Fed’s favorite inflation gauge, showing a +6.4% annual increase in February, the steepest rise since February 1982.[xviii]
We continue to offer a differentiated view. Market history has taught us to be very careful during markets like the one described above. We scenario plan – we don’t forecast the market – meaning we are cognizant of the possibility of both continued upside speculation (like post-FOMC) and significant declines (like the 2000-2002 bear market). In significantly up markets like 2019, CIG captured mid to high teens for clients. When markets were more challenging in 2020, our clients were well-served by our risk-balanced strategy – an approach that strives for resilience to specific economic conditions. We currently hold positions in alternative assets, such as gold, a long/short fund, and a managed futures fund in client accounts which have increased in value year to date. Overall, we remain focused on striking the right aggressiveness versus defensiveness in client portfolios given the evolving uncertainty in the markets, economy, and geopolitics. Other market pundits appear to be more positive. On March 25, Jim Cramer on CNBC firmly stated, “I think the bear market is over!”[xix]
CIG attempts to manage the risk of the markets to try to limit losses. Risk management is key to how we think and execute – prudent investment management is prudent risk management. Given a holistic approach and utilizing active management, The Ride[xx] can be smoother, and clients may sleep better at night.
In today’s markets, how would you like to protect and then grow your nest egg to achieve your financial goals? We would welcome speaking with you to explore your needs and how you are tracking against your plan.