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Market Commentary

April 2022



Civista Wealth Management Logo
Frank P. Sudal, CFP®, CFA
Trust Investment Management

Total Returns (%) as of March 31, 2022

Fixed Income YTD 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs 10 Yrs
U.S Aggregate

-5.93

-2.78

-5.93

-4.15

1.69

2.14

2.24

High Yield

-4.84

-1.15

-4.84

-0.66

4.58

4.69

5.75

Global

-7.13

-3.73

-7.13

-10.36

-1.21

0.77

-0.37

Equities






U.S. Large Cap

-4.60

3.71

-4.60

15.65

18.92

15.99

14.64

U.S. Small Cap

-7.53

1.24

-7.53

-5.79

11.74

9.74

11.04

Developed International

-5.91

0.64

-5.91

1.16

7.78

6.72

6.27

Emerging Markets

-6.97

-2.26

-6.97

-11.37

4.94

5.98

3.36

Source: Morningstar.  U.S. Aggregate - BBgBarc US Agg Bond.  High Yield - BBgBarc US Corporate High Yield.  Global - FTSE WGBI NonUSD.  U.S. Large Cap - S&P 500.  U.S. Small Cap - Russell 2000.  Developed International - MSCI EAFE.  Emerging Markets - MSCI EM.
 

The first quarter was difficult for both fixed income and equites, as they ended down in the mid-single digits.  March offered some respite for most equity markets, recovering some of their losses from earlier in the year. The prospects of persistently high inflation, driven by the Russian invasion of Ukraine and ongoing supply chain issues, along with rising rates, has created a broad headwind for the markets with little to no areas of relief.

At the beginning of the quarter, investors were hopeful that supply chain issues, caused by the COVID-19 global economic shutdown, would begin to taper off and eventually cool inflation. Sadly, Russia invaded Ukraine in February sparking a tense humanitarian crisis and burdensome inflationary pressures that are being felt on a global scale.

For the first time in nearly four years, the Federal Reserve (Fed) raised the discount rate by 0.25% in March to begin combatting inflation. The Fed has signaled a series of rate hikes at each of the remaining six meetings this year. According to the CME FedWatch Tool, there is a 79.8% probability that the target rate will be at least 2.50% by the end of this year (which suggests a couple of 0.50% hikes along the way). Since 2021, the Fed has been telegraphing that rate hikes would begin in March and investors took it in stride. However, the fear is that the U.S. economy may tip into a recession if the Fed goes too far.

Recession is not currently our base case scenario this year. The Organization for Economic Cooperation and Development (OECD) estimated that the economic impact of the war in Ukraine may lower 2022 GDP growth in the U.S. by 0.88% (to 2.82%) and by 1.08% (to 3.42%) for the world. Investors will be monitoring the pace of inflation and growth of GDP closely to help determine changes in the economic outlook.

The geopolitical and inflationary risks remain uncertain, and the markets do not like uncertainty. As such, we expect volatility to continue. Please let us know if your circumstances or needs have changed so we can review your investment objectives. While history may not always repeat itself, it tends to be a good guide.  History suggests that investors who stay invested are often better off and more likely to reach their long-term goals than those who engage in panic selling or timing the market.