The markets closed the year down as most asset classes continued to perform poorly. For the year, the S&P 500 declined about 18%. The bond market also closed the year down (the Bloomberg U.S. Aggregate Bond index fell about 13%) as the Federal Reserve (Fed) raised interest rates and reduced its balance sheet (i.e., not reinvesting the proceeds of maturing securities)...
The markets once again had a down quarter. Both the S&P 500 and the Bloomberg Aggregate Bond Index were down almost 5%. This is the same pattern that occurred during the first two quarters. It is a frustrating investment environment, exemplified by the 15% decline in the bond market through September.
Looking back to the Great Financial Crisis of 2007-2009 provides important context for the current market volatility. At that time, the Federal Reserve (Fed) acted aggressively to restore credit throughout the financial system since many of the country’s financial institutions were on the brink of collapse.
The first quarter has been marked by market turbulence due to the continued rise in inflation and the war in Ukraine. The war in Ukraine is clearly the more important story, given loss of life and freedom involved and the potential global impact of any escalation by Russia.
Inflation and COVID dominated headlines in 2021 as the market plowed ahead to record highs. The two are related – COVID led to shutdowns which slowed both demand and production in 2020. Government reaction to the shutdowns was to stimulate the economy through easy monetary policy (low interest rates) and simply easy money (sending money directly into the pockets of consumers).
