Worst Quarter in 2 Years

April 1, 2022

After back-to-back down months to start the year, March began with more of the same.  Rising oil prices, rising interest rates and the war in Ukraine created a high level of uncertainty.  We did expect interest rates to move higher as the Federal Reserve tightened monetary policy in their fight against inflation, but the uncertainty that comes with war moved some to become cautious.  During the month we saw wide swings in the price of oil as traders tried to determine what the war would mean to global supplies and the stock market moved with those swings.  In the middle of the month the mood changed as Ukrainian forces showed strong resistance and rising interest rates were suddenly seen as good for an economy that is fighting inflation.  Near month end we had one of the best short-term rallies in history that helped the S&P 500 gain of 3.6% for the month.  The first quarter loss of 5% was the worst in 2 years, but well off the 13.7% loss we saw on February 24^th.  Oil traded in a $34 range and ended the month with a gain of 8%.  Gold was also volatile trading within a $170 range before closing with a gain of 3%.  The rate on the 10 year Treasury rose 26% to 2.3% and the energy sector had its best quarter in history.

The month began with surging oil prices and news the Russians had shelled Europe’s largest nuclear plant.  The shelling turned out to be a fire that was quickly put out, but oil prices added 6% on the week which sent the S&P 500 down 1%.  The first full week of March the S&P 500 moved towards the low we hit in late February.  Concerns about a global oil shortage sent that commodity to the highest level since 2008 and the market was sharply lower early in the week before oil prices stabilized which generated a 3% one day rally for the S&P 500, its best day since May 2020.  Despite the mid-week rally it was the worst week of the month for stocks, with the S&P 500 ending down 2.9%.  The second full week of the month was a blockbuster as oil prices plunged and traders suddenly decided rising interest rates were good for an economy fighting inflation. At the end of the week the S&P 500 had gained 6.1%, its best weekly performance since 2020.  The rally that began on March 15^th continued into the 3^rd full week despite rising interest rates and rising oil prices.  Economic reopen stocks had been beaten down and they began to rebound as the war in Ukraine started to look like a draw.  The S&P 500 ended the week by adding another 1.8%.  The buying continued into the last week of the month. Despite all of the headwind’s investors started to fear “missing out” and put together a 12 day rally that saw the S&P 500 gain 11%.  We closed the month with the S&P 500 gaining ground for the first month this year.     

April is traditionally the best month for stock market performance, moving higher 15 of the last 16 years, with most of the gains taking place in the first half of the month.  The market appears to have gotten comfortable with 2 of the major headwinds, rising oil prices and rising interest rates, but we are going to be facing quarterly reports from a quarter that had a strong omicron presence (January).  Supply chain issues continue to impact many companies and the direction of the market in April will have much to do not only with quarterly earnings reports, but also commentary on the future.  The world’s second largest economy, China, continues to be hampered by Covid lockdowns and that will further disrupt the supply chain.  The war in Ukraine should play a major role in April with a decline in the hostility a positive and acceleration a negative.

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