Investors were grappling with several issues this quarter:
Not only did these issues negatively impact the stock and bond markets during the quarter, the real issue from both a humanitarian and economic standpoint, was Russia’s invasion of Ukraine. The political and macroeconomic environment created significant headwinds for virtually all asset classes except commodities (from energy to grains) where prices soared during the quarter.
While good things are happening in the U.S. economy with low unemployment and strong company balance sheets, the probability of a recession in the U.S. increased during the quarter. Whether we enter a recession or not will largely depend on the Fed’s ability to guide us through interest rate shifts in a way that doesn’t spook the economy. The Russia/Ukraine conflict remains a wildcard.
We continue to favor shorter duration bonds and value stocks (higher interest rates push bonds lower and tend to negatively impact growth stocks more than value stocks).