In the first half of February, investors played Can-You-Top-This, predicting how many rate hikes the Fed would make this year. In the second half of the month Russia erased any question of their intentions toward Ukraine. Two halves to make a pretty rotten whole month for markets. That makes two in a row for ’22.
Just eyeballing the numbers in the chart above, you can see that February was about half as bad as January. But the real message from this sea of red above is that there has been no place to hide – except in commodities (And who owns commodities? Not individual investors in general).
Clearly, uncertainty is very elevated. What happens to the price of oil and exactly what path the Fed takes against inflation while supporting the economy, are probably the two key determinants of the market’s performance for the rest of the year. I cannot, nor do I know anyone who can, clearly see the outcome paths of those two big unknowns. Our taxable equity model (TQM) continues to handily outperform its benchmark, but it is still down, and losing money is never a happy experience. The non-taxable account (TQM-IRA), faster acting and more defensive is down too – its current recommended allocation is 56% cash, 0% bonds, and while that is very defensive it is still down year-to-date because there’s been nowhere to hide.
Fortunately this isn’t the first crisis we have had to endure armed with our models. We will remain conservatively positioned, trying to keep losses limited and on the lookout for the unknowns to clear the market. Then we’ll focus on getting back to our high water marks as quickly as the markets will let us.
Sources: Addepar, Bloomberg, Ned Davis Research (models)
Be well,
Mike
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