Monthly Video Market Update

Ron Rough, Chief Investment Officer, reviews what happened in the markets in the first quarter of 2022.

April Stock Market Update

Hello, this is Ron Rough with a market update video for April. In the investing world, things can change quickly. Last quarter, when I was talking to you, we had a great, stocks had a great year, and it seemed like happy days were here again. Now, here I am three months later, and stocks are down, bonds are down. There’s war in Europe. Inflation is at the highest level in 40 years. Things couldn’t seem to get much more negative than they are right now.

So let’s take a look at what happened and what that might mean for us as we go forward. The first table I have for you is just the returns for the first quarter. You can see it was negative across the board. Equities were all down mid single digits, so it wasn’t terrible but certainly wasn’t the start that we all hoped for. What is interesting is that bonds were also down as much as equities. Typically, bonds are a safe haven in a down market, and what’s been interesting about this decline is that bonds were down as much or more than equities. That’s quite a difference, and for people who are using bonds as a diversifier, as protection, it has not worked out well at all. You’ll find balanced portfolios down as much as more equity-oriented portfolios this year.

The one safe haven was really commodities. You can see from the chart gold was up about 7%. In commodities in general, agricultural, industrial metals, precious metals, they all had a good quarter. In fact, it was the best quarter for commodities in general in 40 years. So the next chart, what’s interesting about the next chart is this is all the 11 sectors that make up the S&P 500, and I show you this chart because what’s spectacular is the return for energy stocks, up almost 40%. You can see every other sector with the exception of utilities up slightly. All the other sectors were down, technology-oriented sectors down 10% or so, the other sectors down 5- 6%. But what’s amazing about these energy stocks, they were up 40% in the first quarter after being up 50% last year. So it’s been a spectacular run for energy stocks, and yet that’s been the area that has languished over the past 10 years. So, this area has been forgotten by investors for a long time, but now they’re getting a little bit of love with inflation rising and with tensions overseas.

So let’s just take a look at where things are and how are we looking at them and how are we positioning in this environment. So, this chart is the S&P 500. I’ve got a couple of moving averages in here, a 50 day and a 200 day, and then I’ve drawn some lines, and the red lines marking just the resistance or support area during the decline of around 4,200, 4,300. You can see we had about a 12% decline from the high in early January through early March. Now we’ve bounced off of that, and we’ve been in this channel here between 4,200 and 4,600 now for a couple of months.

At FSA, the term we often use is a landing. We often talk about the market moving at a stair step up in an up market, a stair step down in a bear market, and then these landings are periods where the market’s not quite sure where it’s going next. Sometimes we may be in a landing for only a few months. Sometimes it may last over a year. So we don’t know ahead of time, but what it tells us is the market is in transition. Is it going to ultimately break higher, or are we going to ultimately roll over? And that’s the evidence that we’re looking for as we go forward.

We raised cash quite a bit during this decline, certainly after we broke through the 200-day moving average. Once stocks broke back above the 200-day moving average, we began to nibble back in, but until stocks can break above this upper level of 4,600, we will not get the portfolios back to fully invested. But now we’re playing a waiting game. We’re probably half invested across our strategies.

So just as a reminder, so I want to finish up with this. Here’s the S&P 500 over the last three years, and I’ve drawn in a trend line over that three-year period. In general, and this is the S&P 500, but it could be any stock index, generally speaking, we want to be invested when markets are above their trend lines and the trend lines are in an uptrend. So all of this period in 2019 and this period of 2020 and 2021, we have the portfolios very heavily invested in stocks. Anytime stocks break through these trend lines, that’s when we raise cash, and if the downtrend continues, we’ll go a hundred percent to cash. So you can see if we go all the way to this current quarter, stocks broke through in January, February, March, so we began to raise cash, and now that we’ve broken back, we’re basically sitting right at this trendline. So we have the portfolios partially invested, and we’re waiting to see which way we break out from this landing.

So things are undecided at this point, and we’ll let the markets tell us which way to go, but we’re looking at them every day. There are areas in the market that are some places to hide, commodities, more value oriented funds. So there are places to find opportunity, and we’ll continue to do that as this second quarter plays out. But no doubt, the rest of this year will be an interesting journey.

So until our next update, thank you for watching.


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