Monthly Video Market Update

Mary Ann Drucker, Assistant Portfolio Manager, reviews what happened in the markets in April 2022.

May Stock Market Update

Hello, I’m Mary Ann Drucker, here with our video market update for May 2022. In recent years, investors have grown accustomed to market downturns that have been short-lived. We’ve seen sharp declines followed by fast recoveries. We saw this in the last quarter of 2018, which is on the left side of this S&P 500 chart, and at the onset of the COVID pandemic in early 2020, which is in the middle of the chart. But what investors are experiencing now is different, which is on the right side of the chart, and as you can see, it has a longer, more choppy look to it. After the bounce back in March, it appeared that the markets were going to repeat their recent history of a quick correction followed by a quick recovery, but April threw investors a curve ball with the equity markets rolling back over, turning this correction into a more prolonged and choppy downturn.

In our last market update, Ron Rough talked about the S&P 500 moving around a trend line. He described how FSA’s approach is to be invested in equities when the markets are above the trend line and to move to cash when the markets are below the trend line. At the end of March, the S&P 500 was simply bouncing up and down around the trend line, and it remained to be seen whether the equity markets would hold the uptrend or roll over again. Then April happened, and by the end of the month, the markets had decidedly moved to the downside.

By all accounts, April was a gut-wrenching month. The S&P 500 was down over 8%, its worst month since the COVID correction in March of 2020. NASDAQ took it even harder, down over 13%, its worst month since October of 2008 during the financial crisis. Bonds fared better than stocks, but even they were down over 3% for the month of April. Outside of commodities, there really was no place to hide.

Coming into April, the portfolios already had an elevated level of cash since the S&P 500 had broken below its trend earlier in the year. During the month of April, we further reduced equity exposure or added an inverse equity position. In other cases, we shifted from broad market exposure to funds that are designed to manage risk on their own and hold up better during choppy periods. And lastly, we sold out of the high yield corporate bond positions since they were getting hit right along with stocks. This table shows how the strategies were allocated by the end of April. There are two points to keep in mind. One, a portion of the equity allocation is in funds that manage risk and hold up better in choppy periods, as well as large cap value funds which have held up better than the broad equity markets. And second, some of the strategies hold an inverse equity position which effectively reduces the loan exposure to equities.

So what have we done in early May? The last day of April was particularly brutal for stocks, triggering more of the FSA Safety Net. In early May, we completely sold out of stocks in the income and growth strategy and further reduced equity exposure in our other strategies. Rest assured that we will respond accordingly to any further weakness in the markets as we move through May. If, however, the markets stabilize and begin to recover, we will be prudent in deciding when and how to reinvest the cash.

Well, that’s it for this video market update. If you have any questions or comments about its content, please don’t hesitate to call or email us. Until next time, thank you for watching.


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