Financial markets and economies can move like a pendulum swinging side to side, exceeding the bounds of moving averages on occasion. While it may be tempting to believe that today's conditions will be with us forever, history reminds us that this too shall pass. During the first quarter, broad U.S. stock and bond prices were lower. Oil prices surged, consumer price inflation hit 40-year highs, and geopolitical tensions rose as Russia assailed Ukraine.  

Diversification of investments was not much help during the first quarter, as most asset classes declined. If that seems unusual, it is. Since 1926, stock and bond markets produced a negative return just 8% of the time (when comparing 3-month periods). On the inverse, an outsized 92% of the time, stocks or bonds were positive.  

Remember that Q1 2022 was just one-quarter of results that followed four previous quarters of positive performance. In the chart below, we compare historical 3-month and 15-year returns (S&P 500 from 1930 to 2022), to show the wide range of returns that have been experienced in the short-term vs the long-term. 

On the heels of a strong labor market and high inflation, the Federal Reserve (Fed) acted by raising short-term interest rates during the first quarter. The Fed makes borrowing more expensive by increasing short-term interest rates, slowing economic activity, and inflation. Forward-looking financial markets typically focus on the rate of change from one period to the next rather than absolute price levels. Our view is that consumer prices will continue to rise but at a slower rate based on current economic conditions.  

The Fed has signaled its intention to increase short-term interest rates several more times during 2022. Interest rates across the yield curve maturity spectrum rose swiftly during the first quarter. As a result, cash savings accounts could start to pay higher yields, a small consolation for savers. 

While unique market conditions will always shape our tactics, the core philosophy of long-term growth coupled with short-term stability is foundational. Accordingly, we continue to advocate for portfolio design using a time-segmented, bucket approach to planning and investing.  

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