The first quarter of 2022 was interesting to say the least! We experienced our first 10% correction since the 2020 Covid-19 bear market. Equity markets have since rallied off the lows in early March to finish the quarter down roughly 5%. On the other hand, bonds didn’t offer any relief. The Bloomberg Aggregate Bond Index fell approximately 6% as interest rates soared.
The only real bright spots this year have been in energy stocks and commodities. Inside client accounts, we have reduced exposure to international and small-cap stocks. The proceeds were repositioned into commodities, energy stocks, and floating-rate bonds. These tactical changes were completed to diversify portfolios further and protect against inflation.
The recent market volatility is a result of uncertainty surrounding inflation, interest rates, and the Russia-Ukraine war. We often find that markets overreact to headline events like the ones we have experienced this year. While no one likes volatility, we weren’t surprised to see it return. Volatility is likely to persist into the future as these uncertainties loom. The years of a 20% return with minimal fluctuations are likely behind us. I don’t say this to scare our investors but to set the stage for the current market environment. We believe it is now more important than ever to work with a financial advisor to help navigate the road ahead.