In Markets "In a Nutshell"

Markets “In a Nutshell” for April 4, 2022

Investment Week at a Glance

Stocks finished higher for the week.  The Dow Jones Industrial Average fell 0.1%, the S&P 500 was up 0.1%, and the NASDAQ rose 0.7%. Foreign stocks (MSCI EAFE) were also up, rising 1.00%.  Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 2.38%.  (Data source: Wall Street Journal)

Equities Fall in Q1

Stocks finished the quarter down roughly 5% making it the worst quarter since Q1 of 2020 which is when the pandemic started. Although Q1 was rough for equities, the market was able to rebound 10% from the lows of this quarter. The 1st quarter was filled with market-moving news such as inflation rising, the Fed raising rates for the first time since 2018, and of course the Russian invasion of Ukraine. Although there are many uncertainties around the world, the US economy has a very strong labor market as the unemployment rate is 3.6%. Not only is the US consumer balance sheet strong, but corporate balance sheets are also very strong and earnings continue to rise. As we move into Q2 expect the same headlines of inflation and war to move markets one way or another.

Inflation Worries

Inflation continues to be a major worry for everyone from the consumer trying to buy gas, groceries, and housing to large corporations seeing higher costs for labor and supplies. Some now worry a recession is on its way as many worries continue to stack up from high inflation and war in Europe causing even more supply chain issues around the world. Another possible sign of a recession is that the 2-year treasury yield is now higher than the 10-year treasury yield. This is called an inversion and has been seen as a recession indicator. In the past 40 years, this inversion has predicted six recessions and has only one false alarm. With that being said, on average it takes over 15 months to see the recession and the market sees gains of more than 7% during that time frame. By no means is this a perfect predictor of a recession it is something that many will pay attention to as we move forward.



When was the last time the 2-year yield was higher than the 10-year yield? (Scroll Down for Answer)

  1.    2007
  2.    2011
  3.    2015
  4.    2019




















Answer below.



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4)     2019, the last time we saw an inversion, we had a recession 6 months later due to the pandemic.