Observations is a monthly advisor-centric column that touches on a variety of current issues.
The month of April was marked by a dearth of volatility at the broad index level. The S&P 500 rose a modest 1.5%, while the Nasdaq was flat, and the Russell 2000 declined 2%.
After years of zero interest rate policy (ZIRP), cracks in the financial system began to emerge in early March. You would never know it by the positive performance seen in the S&P 500 and Nasdaq, as the large-cap indices climbed 3.51% and 6.69%, respectively.
Interest rates and the future path of monetary policy was the theme of the month in February. As we’ve discussed numerous times since short-term rates began to rise off the zero bound in late 2021, the direction and speed of change in short-term rates matter a lot for the equity market.
Last month, we closed out Observations by stating: “even though the calendar has flipped to a New Year, most of the uncertainty and questions regarding our economic future remain.” Since the start of the year, there has been nothing to dispel this notion.
Long-time Tandem followers have undoubtedly heard us talk about mean reversion and even how the foundation of our investment process is built around reversion to the mean. If you stretch out a rubber band far enough, the more you pull on it the harder and the more violent the snapback will be. 2022 will go down as the year of the snapback.
November was a month that had a little bit for everyone. Bullish, bearish, and flat-out confused biases were all confirmed.
After a dismal August and September where the S&P 500 declined 4.2% and 9.3%, respectively, the market was due for a bounce. Over the past month, equity markets staged a bit of a comeback.
The hopefulness surrounding the mid-summer rally has officially dissipated as the S&P 500 closed out September by setting a new year-to-date low and ending down six of the past seven weeks.
The recovery in equity prices that began in mid-June started to retreat this past month. All three major indices – the S&P 500, Nasdaq, and Russell 2000 – made a closing low on June 16th and topped out around the middle of August after advances of 17.4%, 23.3% and 22.5%, respectively.
A new economic and financial market narrative was not what market participants were looking for in June. Over the past couple of weeks, the inflation story has morphed into a growth slowdown story.