2022 First Quarter Stock Market Commentary

Global equities were largely positive in March, ending a choppy first quarter on a positive note with increasing optimism for a peaceful resolution of the Russian invasion of Ukraine. The S&P 500, a benchmark for large cap US stocks, rallied +3.7% in March and is down -4.6% through the end of the first quarter.

• International equities clawed back +0.2% during the month for a -5.4% full-year return on the MSCI ACWI ex-US index.
  
  
• The Barclays US Aggregate Bond Index (fixed income),  fell another -2.8% this month (-5.9% YTD), as the Fed announced their long-awaited rate hike and provided a more aggressive projection for the path of future interest rates in an effort to curb higher inflation.
  
  
• Gold prices gained another +1.7% in March (+7.6% for the quarter) as commodities continue to receive a boost from inflation.
  
  

While the geopolitical landscape remains murky, we continue to focus on the data to drive our decision-making process. Our proprietary Three Dials reading was unchanged during the month of March, as we summarize below:                         

1. Market Sentiment and Momentum: Neutral

After touching its highest level in a year, the CBOE Volatility Index, often referred to as the VIX and known as the “Fear Index”, fell during the month to close in-line with long-term norms.

While moving averages have started to turn back up for domestic indexes, international equities are still struggling to find a support level and establish a firm bottom. On balance, our Momentum Dial remains in a Neutral position through the end of the quarter.

2. Economic Fundamentals: Positive

US economic growth remained intact through March, with unemployment claims hitting a new low for 2022 and consumer demand remaining strong.

European business conditions remain vulnerable to the situation in Ukraine, where we saw falling consumer confidence this month. On the whole, our Fundamental Dial remains in a Positive position based on the current economic data.

3. Valuation: Negative 

Despite below-average earnings projections on the S&P for Q1, price-to-earnings ratios remain elevated compared to historical norms. Given that rising interest rates will only serve to increase pressure on equity valuations, our Valuation Dial stays in a Negative position.

Our Three Dials composite reading remains in a Neutral position at the end of the first quarter.

Sources:

Morningstar, Federal Reserve, FRED, ISMWorld, EU Commission, FACTSET