Global markets have left investors with few places to hide in 2022. Stubbornly high inflation has sparked the most aggressive interest rate increases by central banks in decades, contributing to concerns about recession. Nevertheless, we encourage you to hold tight, knowing that things will get better, that much of the downturn is already behind us, and that bear markets do not last forever.
Financial markets saw a widespread increase in volatility during the quarter, with large daily price swings. Although the global economy continues to rebound from the pandemic-induced recession, early indicators suggest that ongoing supply problems, inflation, and central bank tightening, are hampering the pace of recovery.
So far 2022 has presented the most challenging environment since the financial crisis of 2007-2009, and markets could fall further from here. Nevertheless, the bear market in stocks and bonds has brought prices down to levels that are beginning to attract the interest of long-term investors. We believe the coming year will offer a host of opportunities for investors who aren’t derailed by volatility and who remain committed to their long-term investment plans.
For a year that began with the storming of the US Capitol and a worsening supply chain crisis, then proceeded through a series of devastating natural disasters, and ended with soaring inflation and a dramatic surge in COVID cases, 2021 was remarkably generous to investors.
After many months of back-to-back gains, global stock markets faltered in September and ended the third quarter on a slightly down note, marking a pause in the remarkable rally since the COVID lows 18 months ago. The lull may be ascribed generally to the pandemic. Renewed lockdowns caused by the Delta variant this summer forced factories in many countries to keep workers home and cut back production, even as demand for goods swelled. Meanwhile, shortages of raw materials and labor tangled supply chains, throwing global trade into disarray and exposing the vulnerability of just-in- time inventory management.
The global economy is experiencing one of the strongest synchronized expansions since the 1980’s as vaccination campaigns reach a growing percentage of the population, governments ease COVID mobility restrictions, and demand for goods and services surges. This has been especially true in the US, which posted an annualized growth rate of 6.4% in the first quarter.
The first quarter of 2021 was marked by a sea change in financial markets around the world. Equities continued to power higher on the back of a recovering global economy, and the MSCI All-Country World Index gained +4.57%. Conversely, improving growth expectations contributed to a significant increase in interest rates, pushing the broad bond market down by over 3%.
2020 was a year of loss, upheaval, and adaptation with few parallels in recent history. For investors, it was a year of radical uncertainty and extreme volatility, including the steepest market decline and the swiftest recovery ever, a global economic shutdown, and monetary and fiscal stimulus programs that dwarfed all precedents. In the US, we lost 22 million jobs and regained 12 million, impeached one president, elected his successor, and marched by the millions to protest racism and police violence.
Despite 2020’s volatile mix of ingredients, the third quarter was a period of relative calm for investors.
The COVID-19 pandemic has delivered a historic shock from which the global economy continues to reel.
The market convulsions of the past two months have been unusual by any standard. Only twice before, in 1929 and 1987, have investors experienced comparable volatility.
Global financial markets enjoyed an exceptionally strong year in 2019, with positive returns from every asset class.