Losing 5% best you could do in stocks, bonds
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, the least-bad performance among U.S. assets were declines of 4.9 percent in the S&P 500 and speculative credit. They were followed by a 5.6 percent fall in Treasuries and a 7.8 percent slide in investment grade. Not since 1980 has the best return among those four categories been so paltry, Bloomberg data shows.
Numerous periods have obviously been far worse for specific sectors. This quarter’s retreat in equities pales in comparison to the 20 percent drubbing they took at the start of 2020. But viewed as a whole, 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. “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 percent at its worst, while the techheavy Nasdaq 100 and the Russell 2000 of smallcaps each entered a bearmarket decline of 20 percent. 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 outperformed bonds.
The dire performance was a new experience for investors who park their money in stocks and bonds. The selloff is bad news for the 60/40 portfolio strategy that aims to perform well through diversification and is followed by balanced mutual funds and pensions.
The only major asset that’s booming is commodities. From oil to copper to wheat, the prices of basics have surged as a supply crunch was exacerbated by Russia’s invasion of Ukraine. The Bloomberg Commodity Index jumped 25 percent for the best quarter since 1990.