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Market Commentary | April 18, 2022

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Rapid rise in real rates takes a toll

At the midpoint of the month, the damage caused by the increase in real rates is notable, especially in investment grade corporate bonds, growth stocks of all sizes, both domestic and foreign, and of course long-term Treasuries. U.S. corporate bonds have shed another 3.7% mtd, bringing the year-to-date total to -11.1%. Large cap growth stocks are off by 5.6% (-14.1% ytd), small cap growth stocks are down 4.2% (-16.3% ytd), and the MSCI EAFE Growth and EAFE Small Growth indices have lost 4.2% (-15.6% ytd) and 3.9% (-16.1%), respectively. The Bloomberg U.S. Long Treasury index has the unenviable position of rounding out the bottom, returning almost -8% mtd and -18.5% ytd. Value stocks have weathered the storm much better, with both the Russell 3000 Value and the MSCI EAFE Value indices off by a modest 1.3% ytd. Only commodities and leveraged loans are in the black both for the month and the year, with the latter hanging on by a thread. The environment has been treacherous for many investors.

Concerning long-term Treasuries, modeling by both Guggenheim Investments and Alpine Macro demonstrate that the selloff has likely been overdone (see the next two charts). Higher yields, among other things, have attracted foreign buyers. The Daily Shot reports that aggregate foreign buying of Treasuries over the last three months has been the strongest in over seven years, totaling almost $200 billion.

On the inflation front, while oil prices are well off of their highs, down almost 25% from early March, there isn’t much good news to be had just yet. The Labor Department said last week that the producer-price index rose 11.2% on a 12-month basis, which was the highest increase since the Department began reporting the series in 2010. Further, manufacturing capacity utilization is approaching the 80% level that had historically been associated with inflationary conditions, although that indicator seems to be a bit late to the party this time around.

With the traditional 60/40 mix down just shy of 8% through April 15th, investors are being reminded that their hypothetical risk tolerances need to match their willingness and ability to stay invested when things get tough.

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U.S. Large Cap Equity S&P 500® Represents US large company stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ.
U.S. Large Cap Equity Russell 3000® Market-capitalization-weighted equity index that tracks the performance of the 3,000 largest U.S.-traded stocks.
U.S. Small Cap Value Russell 2000 Value Measures the performance of the small-cap value segment of the US equity universe.
International Equity MSCI EAFE



An equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the U.S. and Canada.

The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend.

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Commodities Bloomberg Commodity Captures large and mid cap representation across 27 Emerging Markets (EM) countries.
Domestic Producers Producer Price Index (PPI) Family of indexes that measures the average change over time in selling prices received by domestic producers over time.
Floating Rate Bonds Leveraged Loans The $US-denominated leveraged loan market. Includes principal, interest, and reinvestment return. The cumulative return assumes that coupon payments are reinvested into the index at the beginning of each period.
Investment Grade Corporates Bloomberg Barclays U.S. Corporate OAS Represents the Option-Adjusted Spread (OAS) of the Bloomberg Barclays U.S. Corporate Index, which measures the investment grade, fixed-rate, taxable corporate bond market.
Long-Term Treasuries Bloomberg U.S. Treasury 20+ Year Measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with 20+ years to maturity.
High Yield Debt Bloomberg U.S. Corporate High Yield Measures the USD-denominated, high yield, fixed-rate corporate bond market

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