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No Place to Hide - First Quarter Market Commentary

No Place to Hide - First Quarter Market Commentary

March 31, 2022

First Quarter Market Summary

There was almost no place to hide from losses in the first quarter.  Traditional equities and fixed income both posted negative returns in the first three months as interest rates and inflation rose and inflation and the Russian invasion of Ukraine added to an already uncertain economic outlook.

US stocks fell 5.0% with value stocks outperforming growth stocks as many of the high-flying stocks that did so well over the past few years became out of favor.  Energy and utility stocks, which are traditionally value oriented, held up well as oil and energy prices rose.   

International stocks fell 5.4% as energy prices and supply threatened to hamper growth in European countries, as a result of the Russian invasion.  Emerging markets underperformed developed markets.  China is the largest emerging market country and is dealing with government imposed COVID lockdowns, which contributed to the 14.1% decline in the Chinese stock market for the quarter. 

The 10-year Treasury yield rose 0.81% during the quarter (an over 50% increase) to end the quarter at 2.32%.  The Treasury yield curve is incredibly flat as short-term yields rose in anticipation of continued Fed rate hikes throughout the year. 

Below is a table highlighting various market index returns over the past 3, 12, and 36 months:


Consumer sentiment is sitting lower than at any other point in the past decade.  There are still significant points of economic uncertainty with Putin’s war in Ukraine, inflation, and the new strain of the coronavirus.  Although wages have increased and investors expect wage gains to continue, gas prices and the cost of other goods and services are also expected  to continue rising, hampering the optimistic outlook.

Looking at the chart below, you can see that consumer sentiment is well below the lows of COVID and lower than at any point since 2012.  Typically, when consumer sentiment is low, risk assets fall in price at the same time.  Investors hate uncertainty and that typically shows in stock prices.  When things in the economy become more uncertain, it typically creates greater stock volatility. 

Source:  University of Michigan

Even as consumers were saying that they were not confident about the economy or the future, they continued to spend.  As seen below, personal consumption has been on a steady increase since the COVID recession.  Meaning that they were saying one thing while doing another.  Companies during this time continued to struggle with lead times and getting supplies to sell, adding to inflationary pressures, but were able to pass the price increases on to the consumer. 


When consumer sentiment is low, it can sometimes be difficult to continue to hold risk assets, let alone think about buying more.  History has taught us that when others are hiding in cash and scared to buy, it could prove to be a good time to hold or buy risk assets.  We don’t know when the trend  will turn positive and it’s impossible to time the bottom, but it’s usually a good idea in the long-run not to change investment strategies when consumer sentiment is low.  When an investor looks back 2-5 years later, they are typically happy to have continued to hold or buy risk assets. 

Each blue point in the chart below shows the next 12 month return for the S&P 500 Index if an investor bought at that point.  When the point is above the dotted line, consumer sentiment was high and when it was below the line, consumer sentiment was low.  You can see that 12-month returns were attractive if an investor was able to buy at the low point of consumer sentiment. 

Source:  JP Morgan Asset Management

 Timing the exact bottom of consumer sentiment is nearly impossible and just luck if you could manage to do it.  The general idea is to show that when consumers feel like the future will be poor, the market could be providing an attractive opportunity for future returns.  Markets could absolutely go lower and consumer sentiment could continue to move lower, but acting in the opposite direction of consumer sentiment has historically provided long-term investors with attractive returns.

Don’t let your feelings about the economy, inflation, or geopolitics drive emotional reactions in your portfolio.  Investors should continue to focus on the long-term and rebalance as necessary to control risk. 


JR Geld, CFA, CFP®          


Philip E. Huber, Jr, CPA, CFP®

HWA Financial Group

3448 Ellicott Center Dr.

Suite 101

Ellicott City, MD  21043