1st Quarter Review | Stock Talk Podcast

First-quarter 2022 is now behind us, and I can say with absolute certainty, it was the sloppy, choppy mess that we first previewed in early November of last year. During the first quarter, the S&P500 declined short term, intra quarter, into “correction territory of more than -10%, reaching down about -12.5% from its cash closing high to cash closing low on March 8th. The Nasdaq composite, which is largely high-growth technology and healthcare stocks, fell just short of “bear market territory” intra-quarter to -19.5%.

I am Chris Perras with Oak Harvest Financial in Houston, and welcome to our weekly stock talk podcast. Before we get into this week’s topic, which is a review of the 1st quarter markets, please take a moment to click on the subscribe button and click on the notification bell so you will be alerted when our team uploads new content.

As I previously mentioned, the overall S&P500 sustained its first intra-quarter correction, universally defined as a decline of -10-20% in price, since our Covid lows in late March 2020. The NASDAQ composite index fell within a whisker of its own “bear market,” defined as a greater than -20% loss using market close prices. That’s the bad news. The good news is that had you not panicked at the worst time, on or near the lows which is also when most investors anxiety is highest, and had you stayed pat in your overall indexes or strategies that you designed with your financial advisor you probably didn’t blow up your long-term financial plan. Why? Because those two indexes, the S&P500 and Nasdaq composite, then violently rallied almost in a straight line into the quarter-end. The final tally on the S&P500 was down about -5% in total return. The NASDAQ composite first-quarter decline amounted to about -10%. And with that, the first quarter, sloppy, choppy mess was over, only to move into the second quarter for what likely will be another 4 to 6 months of messy overall action led by large and violent sector rotations.

Here is a small list of big things that happened during the quarter: The NASDAQ 100, QQQ ETF declined into a bear market for over two months and then recovered half of those losses in two weeks. In plain speak, it declined over -20% over about eight weeks and recovered half those losses in less than ten trading days.
The bond market suffered its worst first quarter in decades as inflation fears rose and as America printed an inflation number above 7.5%. With these numbers, the Federal reserve ratcheted up interest rate increases talk.

Russia invaded Ukraine during the first quarter, and the Russian market dropped 45% in a day and stayed closed for 26 days. Since Russia launched its initial invasion, even though there has been non-stop TV coverage of the ongoing war atrocities and the invasion has induced even higher commodity costs, the overall stock market rallied strongly the second half of March, and the S&P500 closed the quarter down around -5%.

Seeing that they were behind the inflation curve, the Federal Reserve talked hawkishly non-stop in the news throughout the first quarter. In March, they hiked short-term interest rates for the first time since 2018.
During the quarter, spot volatility in the stock market, as measured by the VIX index, hit almost 39 intraday at the market lows. Things were so jittery that people were paying over a 25% premium for short-term insurance for a few days and weeks versus the same policies lasting three months or more. That’s panic.

Energy and commodity stocks were the best performing asset in the 1st quarter, helped by Oil prices briefly spiking to $140 per barrel. This commodity squeezed higher on the Russian invasion of Ukraine and the western World sanctioning much of Russian commodity exports. These sanctions and Russia and Ukraine’s importance in the World of commodities had numerous follow-on effects, including metals and grains.

Also, in commodity land, in the first quarter, with the global concerns of Russia being out of the Nickel market as a supplier, the London metals exchange was forced to suspend Nickel trading and cancel orders in a truly historical move. This move was caused by a historic short-squeeze caused by a Chinese Nickel producer scrambling to cover a production hedge of his own company. This trading vaulted nickel futures up 150% during the quarter and up 100% over just a 5-day period. The investing lesson in commodities for the first quarter is easy. Only true professionals should be trading them hedged or unhedged. And even then, the real professionals who know and control the actual physical supply and demand for the commodity, can run into problems and, can be forced into or close to bankruptcy quickly.

In the grain markets, with Russia and Ukraine at war, soft commodities that they export to the World, like Wheat, also had extreme moves throughout the first quarter. The price of wheat futures doubled from about 750 to 1350 in less than 20 trading days in February and March.
Also, overseas, the Hong Kong stock markets fell almost -12% in 4 days on delisting concerns here in the USA as well as Covid lockdown concerns over in China.

As one can see, it was a very eventful and turbulent quarter, not just in America but also around the World.
There is likely to be lots more indecision and emotion in the markets over the next 4 to 6 months due to a myriad of excuses. The list we presented a few weeks ago includes 1) federal reserve interest rate and balance sheet policy changes, 2) ongoing global economic slowing due to the Russia and Ukraine war and sanctions, 3) higher mortgage rates zapping some consumer demand for durable and discretionary spending along with sentiment, and 4) higher commodity costs pinching demand and margins.

With all those worries, things should remain sloppy and rotational for the upcoming months. If pressed, I would say that the second quarter in the markets looks like a lurch and grind outcome higher. How much higher? Normal would have us approaching our all-time highs over the next three months into late June. However, normal would also have us declining and backfilling once again in the 3rd quarter. Overall, it should remain messy.

We continue to expect more volatility in the upcoming second and third quarters, around which we are likely to make moves around the edges when we find value in single stocks or sectors. Should our market outlook and views change, should we determine that we are experiencing more than a normal corrective period in both price and time in this bull market, we will let you know and make larger adjustments that we believe can move the needle. Until then, we will be moving slowly, and we will be looking for companies that 1 – look to have either high or stable and 2) or improving and accelerating cash investment returns for the second half of 2022 and the first half of 2023 when we believe there will be a resumption of the ongoing bull market.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs and risks, instead of focusing on the past. Our crystal ball is far from perfect, nor is anyone’s, which is why our advisors and retirement planning teams plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that is meets your retirement goals. Call us at (877) 896-0040, we are here to help you on your financial journey into and through your retirement years.

 

 

 

Summary
1st Quarter Review | Stock Talk Podcast
Title
1st Quarter Review | Stock Talk Podcast
Description

Important income planning update as first-quarter 2022 is now behind us, and I can say with absolute certainty, it was the sloppy, choppy mess that we first previewed in early November of last year. During the first quarter, the S&P500 declined short term, intra quarter, into “correction territory of more than -10%, reaching down about -12.5% from its cash closing high to cash closing low on March 8th. The Nasdaq composite, which is largely high-growth technology and healthcare stocks, fell just short of “bear market territory” intra-quarter to -19.5%.