“You can be pretty sure you’re showing courage as an investor when you listen to what your gut tells you – and do the opposite”
– Jason Zweig

“At heart, uncertainty and investing are synonymous”
– Benjamin Graham

And just like that, the geopolitical news from the Russian-Ukraine conflict, coupled with 40-year highs in inflation, was the catalyst for an overdue global equity market correction. From the intraday high made on January 4th to the lows on February 24th, the U.S. equity market (S&P 500) declined almost 15%, before investors once again stepped in and “bought the dip” to try to take advantage of the price weakness. Despite a strong bounce back in March, stocks closed down for the first quarter, suffering their worst performance in two years. Stocks outperformed both long- term treasuries and corporate bonds which declined by 10.2% and 7.7%, respectively. International stocks fell 5.3% in U. S. dollar terms while emerging markets declined by 6.9%. The S&P 500 equal-weight index fared better than the S&P 500 index (market-cap-weighted) for the quarter, implying that the “average” stock performed better than the index, which is largely driven by mega-cap technology. The Russell 1000 Value Index outperformed the Russell 1000 Growth index by 8.3% for the quarter as investors gravitated to lower valuation issues. Studies have shown that the least expensive stocks (value) have historically outperformed the most expensive stocks (growth) when the 10-year U.S. Treasury yield is rising. During the past quarter, the top three sectors were energy (+37.7%), utilities (+4%), and consumer staples (-1.6%). The worst sectors for the past quarter were communication services (-12.1%), consumer discretionary (-9.2%), and information technology (-8.6%). The best and worst performers seem to be following the script of past periods of stagflation, according to a report by BofA Global Research dated 12/15/2020 (see chart on page 2). Stagflation is defined as a period of below-average GDP coupled with rising inflation.

Read our full investment commentary and letter to clients by downloading the first quarter 2022 Letter.