April 7, 2022
Market Highlights 1Q 2022
Indices started out the year near all time-highs. However, the market began moving lower almost immediately. While the S&P 500 Index ended the quarter down only 4.6%, we saw a -13% peak-to-trough mid-quarter correction as interest rates increased to levels not seen since 2019. As inflation continued to rise due to a combination of elevated demand, continued supply constraints, and the Russian invasion of Ukraine, market participants increasingly abandoned the “inflation is transitory” camp. With the Consumer Price Index (CPI) hitting 7.9% in February, a rate not seen since the 1980s, fear of a repeat of a 1970’s style inflation consumed the market. Meanwhile, the energy sector (less than 4% of the market) had its strongest quarterly performance in its history going back to 1989, buoyed by a combination of increased demand, lower supply, and a move away from Russian energy sources. At quarter end, the Federal Reserve raised its benchmark federal-funds rates for the first time since 2018, bringing the range 0.25% to 0.5%. Fed Officials signaled their plan to lift rates by nearly 2% by the end of the year. Median projections show rates rising to 2.75% by the end of 2023, the highest since 2008.
The Dow Jones Industrial Average fell 4.10%, beating the S&P 500 Index’s return of -4.60%, and the Nasdaq Composite’s return of -8.94%. Two out of the eleven sectors posted positive returns during the period with Energy and Utilities returning 38.99%, and 4.77%, . Large-cap stocks outperformed mid-cap stocks, which beat small-cap names. Specifically, the Russell 1000 Index declined 5.13% compared to the Russell Mid-Cap Index, which returned -5.68%, and the Russell 2000 Index, which lost 7.53% for the quarter. Value stocks continued to outperform growth stocks, as the Russell 1000 Value Index declined 0.74% compared to the 9.04% decline of the Russell 1000 Growth Index over the same period. Bonds declined over the period with long-dated US Treasuries returning -11.01%, while US corporates did better with the Barclays Aggregate returning -5.93%. The US Dollar Index gained 2.76% for the quarter, while gold gained 6.58% and oil gained 33.33%.
All data sourced by Bloomberg.
The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The Dow Jones Industrial Average (DJIA) is an unmanaged index composed of 30 blue-chip stocks, each with annual sales exceeding $7 billion. The DJIA is price-weighted, reflects large-cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes, such as the S&P 500. The NASDAQ Composite Index is a market capitalization-weighted index that is designed to represent the performance of NASDAQ securities and it includes over 3,000 stocks. The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell Midcap® Index, an unmanaged index, measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell® 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. The Russell 1000 Value® Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Growth® Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Barclays U.S. Aggregate Bond Index tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.
The views expressed in this commentary reflect those of Miller Value Partners analyst(s) as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.
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