We saw increased volatility in stocks and bonds in March, as the S&P 500 rallied to finish the month up about 3.5%. (YCharts)

It was an eventful month of headlines, primarily with turmoil in the banking sector as two banks failed in three days.  Concerns surrounding the banking system became the number one issue for investors, with the subsequent Fed meeting and rate decision a close second.

We’ve received a number of questions about the banking system and will tackle three of the biggest ones below:

1. Are these failures systemic?  At this point, we don’t believe these bank failures are a sign of widespread issues.  One reason for this is that the cost to insure against banks failing increased (as expected), but remained below the levels we saw in 2020 and far below levels seen during the financial crisis.  That said, we will continue to watch this sector carefully and be ready to make adjustments to portfolios if needed.  

After a strong start to the year February brought with it some volatility as the S&P 500 ended the month down about 2.5%, but is still up roughly 3.4% for the year.  We were not surprised to see volatility, and think that we could see more choppiness in the months ahead as investors continue to digest recession risk and potential Fed policy changes.

The impact of these factors is not limited to stocks, but also affects the bond market.  In February the 10 Year US Treasury Yield jumped from 3.52% at the beginning of the month, to 3.92% at month’s end.  For perspective the 10 Year Treasury was yielding 1.83% at this time last year. (YCharts)

Below, we’ll highlight two key groups that are impacted by higher rates:

2023 is off to a good start as both stocks and bonds rallied in January with the S&P 500 up about 6%.  (YCharts) This bounce was welcomed by investors as the mix of economic data suggested the Fed might be able to shift toward a less restrictive stance in the months to come.

That said, we wouldn’t be surprised to see market volatility ahead as we appear to be in an environment where investors are looking for Goldilocks data each month – not too strong (to cause higher inflation), not too weak (a sign of recession), but a “just-right” combination of economic growth at a reasonable pace.  This month we saw some data that gave us a glimpse of what that combination could look like:

As 2022 comes to a close we look back on an eventful and challenging year for investors as the economy and stock market faced a number of headwinds which led to a bear market for stocks, and negative returns for fixed income. Those headwinds were led by stubbornly high inflation, a big jump in interest rates, and concerns that we are heading toward a recession. In this outlook we will

We hope you had a wonderful Thanksgiving and had the opportunity to spend time with family and friends.  One thing for all of us to be thankful for is the recent rally in stocks.  The S&P 500 was up about 5.4% for November, and is now up about 13.8% for the quarter.  While this improvement is encouraging, we still have a long way to go as the index is still down approximately

September was another difficult month for stocks as the S&P 500 fell into bear market territory once again closing down roughly 9% for the month and 5% for the quarter. (YCharts) The main drivers once again were inflation, the Fed, and interest rates as investors continued to worry about the impact of each of these on economic growth. 

The odds of a recession have steadily increased throughout this year which has been reflected in the deterioration of our economic dashboard. The dashboard helps guide our portfolio positioning. As such, the deterioration in the dashboard led us to be defensively positioned for most of the year with a portion of our growth portfolio.

July’s stock market rally continued in the first half of August; however, volatility picked back up over the last two weeks of the month and the S&P 500 finished down about 4% for August.  That leaves the index down roughly 17% for the year. (YCharts) 

Once again it was inflation and the Fed that moved markets throughout the month with  better-than-expected inflation numbers driving the early rally, before concerns over a slowing economy were driven by Fed Chair Jay Powell’s speech later in the month. Next month, investors will again be watching inflation data carefully, and what it means for Fed policy, as the Fed is poised to raise rates in September: currently expectations are for a hike of 0.75%. (CME FedWatch Tool)

The challenging first half of 2022 is now in the books as the S&P 500 dropped roughly 8% in June bringing the year-to-date return to about -20.5%.  While stocks struggled, they were not alone, as most asset classes have been negatively impacted this year, including fixed income, with the US Aggregate bond market down about 11% for the year.

The good news is that we made changes to portfolios in April to manage risk due to the fact that we felt the chances of recession were rising.  Thus far, that change has been a good one for portfolios and we continue to have a portion of our growth portfolios defensively positioned today. 

The volatility we’ve seen since the beginning of the year continued in May as stocks alternated between strength and weakness, with the S&P 500 closing the month almost unchanged.  One piece of positive news for many investors was that the bond market stabilized with the Bloomberg Aggregate Bond Index up roughly 1% for the month after seeing losses in the first four months of the year. (YCharts)

We made changes to our portfolio positioning in mid-April in an effort to reduce risk within the growth portion of accounts.  While this defensive shift has worked well so far, we continue to monitor current economic and market conditions for potential changes.  As we look to the next 6-12 months, recession risks have risen but our economic dashboard does not yet signal that a recession is imminent.

April was another challenging month for investors as the S&P 500 was down almost 9%, while bonds also struggled as the Bloomberg US Aggregate Bond Index fell about 3.5% (YCharts).