Looking Back at the Markets in March and Ahead to April 2022

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We saw a bit of a bounce in stock markets in March, but not enough to recover from a terrible first quarter. U.S. markets were up between 2 percent and 4 percent for the month, and developed markets managed to squeak out a small gain, but everything else was down from 1 percent to 3 percent. For the quarter, markets were down between 3 percent and 8 percent, with blue-chip companies doing best and tech stocks getting hit the hardest.

Looking Back

Inflation. There were two reasons behind the markets’ poor performance in the first quarter. First, the continuing strength of the economy, along with the lingering supply chain problems, pushed inflation to a 40-year high. This forced the Fed to raise interest rates for the first time since the start of the pandemic. That increase, and the fear of more, drove interest rates higher around the world, shaking financial markets.

Ukraine war. The second reason was the Russian invasion of Ukraine. This war unsettled markets and created the prospect of energy and food shortages, generating even more uncertainty around the global economy. So it was a very rocky start to the year for markets.

Job and spending growth. Despite this difficult start, things in the U.S. kept improving. Covid-19 cases ended the quarter at the lowest level since last summer. Hiring was strong and supported current consumer confidence and spending growth, and business confidence and investment remained healthy. From both medical and economic standpoints, things were better at the end of the quarter than at the beginning. And after pricing in the expected interest rate increases, as well as the emerging risks from the Russian invasion, markets started bouncing back in March.

Looking Ahead

Continued recovery. Looking forward, the question is whether that improvement will continue into the second quarter. On the whole, it looks like it will. On the medical side, progress has slowed, and we may face the prospect of another pandemic wave. But the economy has proven to be robust throughout the prior waves. Plus, with current high levels of immunity, any damage should be minor and not derail the recovery.

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