The calm after the storm... or the eye of the hurricane?
After a rough period, markets appear to have stabilized, however fleeting that might be, as investors take stock of the damage suffered in recent months. And oh, what damage there has been. Last week marked the sixth consecutive weekly decline for the S&P 500®, bringing it within a hair’s breadth of a 20% drop from the peak that would have officially signaled a bear market (as if that is in question). The crypto world, a topic that we’ll largely avoid, except to say that as reported by the Wall Street Journal, has seen more than $1 trillion in value disappear in six months. Furthermore, per Pitchbook, venture capital investments fell by 26% during the first quarter, as start-ups face tighter budgets and shorter leashes in an environment where burning cash in the hopes of superior long-term growth is met with far less patience. Indeed, damage has been widespread, which explains the mood of fund managers who have materially upped their cash levels.
Contributing to the market maelstrom is the ever-present inflation specter. The April Consumer Price Index (CPI) reading came in at 0.3% month-over-month or 8.3% annualized, ahead of the 0.2% expectation, and barely below the 8.5% annualized print in March. Jobs and supply chain issues, which are contributing to the stickiness, aren’t offering much help to the Fed. The latest jobs report showed a gain of 428k, matching the prior month, and coming in higher than the 380k that was expected.
Further, China’s covid lockdowns have yet to recede.
Contributing to the growing belief that supply-chain issues will be with us for an extended period.
The mid-month report card on asset class performance is bleak. Commodities, with a 1.1% return through the 16th is the only asset class in positive territory, although bonds have settled down; the Bloomberg U.S. Aggregate Bond Index is only showing a loss of 2 basis points (bps). REITs have been the hardest hit, declining by 7.9%, followed by emerging markets (-6.3%), and international small caps (-5.4%). Managed futures funds, while not an asset class, have been the one area outside of commodities that we model that area providing respite, as all of the funds we follow are in positive territory for the month.
Lastly, from the glass-half-full perspective, it’s not just countries and companies that are opting out of doing business with Russia over the war in Ukraine. Russian citizens are voting with their feet as well. As reported by DealBook, “The Russian Association for Electronic Communications said it expects that about 10 percent of the industry’s work force, or about 150,000 to 170,000 people, will have fled the country by month’s end. The Biden administration hopes to capitalize on the exodus. In a funding proposal to Congress, it has asked to ease visa barriers for Russians with advanced degrees, with a focus on attracting experts in artificial intelligence, cybersecurity, semiconductors and robotics.” Their loss could be our gain.
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| ASSET CLASS | INDEX | INDEX DESCRIPTION |
| 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 |
| International Small Cap Equity | MSCI EAFE Small Cap | An equity index which captures small cap representation across Developed Markets countries around the world, excluding the U.S. and Canada. |
| Emerging Market Equity | MSCI Emerging Markets | An Index that captures large and mid cap representation across 27 Emerging Markets (EM) countries. |
| Commodities | Bloomberg Commodity | Captures large and mid cap representation across 27 Emerging Markets (EM) countries. |
| REITS | FTSE NAREIT Equity REIT | A free-float adjusted, market capitalization-weighted index of U.S. equity REITs. |
| Investment Grade Bonds | Bloomberg U.S. Aggregate Bond | Measures the performance of the U.S. investment grade bonds market. The securities must have at least one year remaining to maturity, must be denominated in U.S. dollars and must be fixed rate, nonconvertible and taxable. |
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