The eventful first quarter of 2022 has weighed down market performance, a trend that is continuing into the second quarter.
Despite impacts from the pandemic, 2020 and 2021 were fairly strong in terms of market performance. But as 2022 kicked off, we started to see a slump.
This is not a totally unexpected response. We knew that the Federal Reserve was going to raise interest rates in an attempt to bring down record high inflation rates. Whenever interest rates go up, bonds tend to go down in value. We did see a first quarter drop of about 5.93 percent in U.S. bonds, and 4.05 percent in the global bond market.
This downward trend in stocks and bonds may also be a reflection of investor concerns. If the interest rate increases don’t temper inflation, the Fed may have to raise interest rates even more.
This kind of action led to the recession in the early 80s, and investors are likely watching carefully to see signs of something similar happening now.
We did see growth in other areas, particularly 5- and 10-year stocks:
2022 Quarter 1: International impacts
There are a couple other major events that are impacting U.S. and global markets.
First, Russia’s war in the Ukraine began in February, leading to supply chain disruptions, higher gas prices and concerns about the European economy.
China is also dealing with more coronavirus outbreaks, which have triggered lockdowns. This is leading to slow economic activity, which is affecting the worldwide economy.
2022 Quarter 1: Where we stand now
In April, the consumer price index jumped to 8.3 percent, which was higher than the anticipated 8.1 percent. However, the CPI was 8.5 percent in March. These numbers tell us that inflation might be peaking, but they still remain at 40-year highs.
As we keep an eye on the markets, remember that things can change quickly. Try not to make any sudden decisions based on current volatility. Balanced portfolios are meant to weather these ups and downs, and impulse decisions could end up costing you in the long run. That being said, these drops in the market do open up new investment opportunities, so it’s worth watching as things progress.
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