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What to make of the first quarter



Can there be another quarter with more countervailing winds than the first quarter of 2022?

The world is not yet free of COVID 19, in fact, some areas of the world are seeing cases spike higher.

A war criminal, a bully, is leading a war of genocide against a brave but undermanned neighboring country.

Inflation has raised its ugly head due to the pandemic’s shutting down businesses causing supply chain interruptions.

To make matters worse, government ******** are doling out dollars creating too much money chasing too few goods.

And to fight inflation, central banks are raising interest rates to slow economic growth which usually leads to a recession.

John Wayne said, “Times are tough but they are even tougher if you are stupid”.

If only these government “helpers” would get out of the way and let market forces clean out the system.  It would hurt but it would work.

For the quarter, the stock market was on a roller coaster.  At one point during the quarter, the S & P 500 was down almost 14% but it recovered in March falling only 4.9% for the quarter.

A Fortune article was entitled “So Your Stock Portfolio is Down 5% This Year.  Congratulations, You’re an Investing Genius”.

With oil prices reaching $130 per barrel, the energy sector outperformed all of the others rising 31% during the quarter, Chevron was up more than 40%, Occidental Petroleum up 100%.

In spite of rising interest rates, utilities performed well, rising 10%. The worst performing sector was Consumer Discretionary, the Home Depots and Nikes of the world, down 18.39% as discretionary money is drying up.

After such a long popular run, the Technology sector fell 17%. The much-followed economic indicator, the Dow Jones Transportation Average was down slightly more than 7% for the quarter.

Goods are not moving. The principal Russian exchange, the MOEX, was down 28.9%.  Not down enough!

My most-asked question is, “When should I get out of the market?”

Although you will hear individuals say, probably over cocktails, “I have gotten out of the market. I am completely out of the market.”

I don’t know any professional investor who gets completely out of the market. Getting completely out of the market requires perfect information and two perfect decisions.

There is a plethora of research reports on investors missing the market upturn after “getting completely out of the market.”

Sensing a downturn, liquidate the most highly volatile holdings.  Hold on to the good names that are solid companies and pay good dividends.  At this point, value is good, growth is not.

The much-followed 10-year Treasury Note has risen to a yield of 2.79% from a 12-month low of 1.13%.

The yield rose 81 basis points during the quarter. The Bloomberg Aggregate Bond Index fell 6% during the quarter, the greatest quarterly decline since the first quarter of 1980. As yields rise, bond market values fall.  Bond funds had a bad quarter.

Commodities enjoyed their best quarter in 30 years. Crude oil prices were up 33%, wheat prices with 40% of the world’s supply coming from Ukraine were up 31% and corn prices were up 26%.

Fertilizer prices with much of the material coming from Ukraine and Russia are up 30%. Look out food prices.

The Conference Board is a widely-respected global independent organization of business executives who are polled periodically about their businesses and their markets.

It has run three scenarios of the U. S. economy in an effort to predict the year 2022 with a look into 2023.

Their most likely scenario has oil at $125/bbl with other vital commodities at similar increases.

Economic growth will remain stunted through Q3 of 2022 and possibly into early 2023 due to the above-mentioned causes.

Real GDP is expected to grow 3% in 2022 and 2% in 2023, versus near 6% in 2021. A real slowdown!

To bring it down to where the rubber meets the road, Reuters Investment Service reported that historically after an inverted yield curve occurs the stock market has continued to grow by 11% for the next 12 months and a recession occurred 16 months after the reversion.

The Fed always touts a “soft-landing.” I’ve never seen it achieve one but I have some confidence in Chairman Powell who has some business experience.

Hopefully, the second quarter won’t be as tumultuous as the first quarter.

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