The week in review
- Unemployment rate fell to 3.6%
- Hourly earnings: +5.6% y/y; +0.4% m/m
The week ahead
- Durable orders
- Light vehicle sales
- Services PMI
Thought of the week
Asset class returns in 1Q22 were impacted by heightened geopolitical tensions, tighter monetary policy and a divergence in COVID-19 policies across regions. In terms of performance, commodities led the way with a 1Q22 return of 25.5%, as import bans on Russian oil along with only a gradual improvement in supply chains have boosted energy, food and raw materials prices. Equities, overall, had a difficult quarter due to higher rates challenging valuations and fears that inflation may put a dent on consumer spending and earnings. Within equities, large caps finished the first quarter down 4.6%, while their small cap peers ended the period down 7.5%. Similarly, higher interest rates have begun to cool a hot real estate market, with REITs declining 5.3% in 1Q22. However, at the industry level, we did see positive performances among lodging/resorts (+6.9%) and offices (+2.8%), as they continue to benefit from the cyclical rebound and easing of economic restrictions. Moving to international markets, DM equity and EM equity decreased 5.8% and 6.9%, respectively, in 1Q22. The conflict in Ukraine weighed heavily on European markets, with the region’s growth estimates cut significantly in the wake of the Russian invasion in Ukraine. Additionally, emerging markets, particularly China, have suffered, as governments continued to impose COVID-19 lockdowns. Turning to bonds, U.S. fixed income markets declined 5.9% over the first three months of 2022, as the Federal Reserve moved forward with hiking interest rates and markets anticipate further tightening through year-end. Lastly, global high yield decreased 5.7% due to the flight to quality stemming from the Russia-Ukraine conflict and continued downgrades and defaults in the Chinese property sector.
