Volatility surged, and stock markets slumped during the first quarter of 2022. When the period began, rising prices and the prospect of less accommodative monetary policy were already weighing on market sentiment. Russia’s invasion of Ukraine injected more uncertainty. Energy prices soared, helping to push consumer prices to multidecade highs across much of the world. Central banks raised short-term interest rates, and growth prospects dimmed.
In March, stocks regained some ground but finished the quarter down more than 5%, as measured by the FTSE Global All Cap Index. U.S. stocks performed roughly in line with the global market. Asia-Pacific stocks declined more modestly, and European and emerging-market stocks were among the laggards.
Yields of U.S. Treasuries rose across the maturity spectrum, with more movement at the shorter end of the curve, given the prospect of more Federal Reserve interest rate hikes. The average spread in yields between Treasuries and corporate bonds widened. The broad U.S. investment-grade bond market declined about 6% (as measured by the Bloomberg U.S. Aggregate Float Adjusted Index).
U.S. bond market
The broad bond market returned –6.01% for the quarter, as measured by the Bloomberg U.S. Aggregate Float Adjusted Index. In general, higher-quality bonds with shorter maturities held up the best. Within the corporate sector, bonds of financial institutions (–6.72%) did better than those of industrials (–8.03%) and utilities (–8.80%).
The Fed in March approved a rate increase of 0.25 percentage point, its first increase since December 2018, and signaled more rate hikes to come in 2022. The bellwether 10-year Treasury note yield finished the quarter at 2.34%, up from 1.51% three months earlier.
For the 12 months, the broad U.S. bond market returned –4.08%.
U.S. stock market
- For the quarter, the broad-market Russell 3000 Index returned –5.28%. Large-capitalization stocks held up better than small-caps, and value stocks outpaced growth stocks.
- For the 12 months ended March 31, the Russell 3000 Index returned 11.92%, led by technology, energy, healthcare, and financial stocks.
- Money market yields rose during the quarter. At the end of the quarter, the Vanguard Federal Money Market Fund yield stood at 0.18%. The weighted average life of the fund on March 31 was 52 days. The fund maintained its high-quality portfolio and benefited from broad diversification and low fees.
International stock market
- Stocks of developed non-U.S. markets (–5.27%) held up better than their emerging-market counterparts, which returned –5.46% for the quarter. Within developed markets, the Pacific region outpaced Europe.
- For the 12 months, stocks outside the United States returned –0.87%, as measured by the FTSE All-World ex U.S. Index. Energy, basic materials, and financials were the top-performing sectors.
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