The first quarter of 2022 was turbulent for both equities and bonds as the world began to adjust to the realities of a new war in Europe and its impact domestically and abroad. This demonstrates how interconnected we are globally, as proven by fears of food shortages and rising energy costs.

The COVID-19 pandemic was unlike anything we have seen in our lifetime. While the early aid for the economy in the form of stimulus was certainly justified, there have been unintended consequences from too much aid for too long. Though layoffs are at their lowest point in the past 20 years, with more than 11.3 million job openings by the end of February, Americans seem reluctant to return to work. (Source: US Department of Labor) The labor market may begin to loosen as vaccine mandates subside, childcare becomes easier to source, and stimulus funds dwindle.  We believe the most significant headwind we are facing is inflation and rapidly rising interest rates. We expect ballooning inflation will continue to be a drag on the economy and the hurried, upward movement of interest rates is sparking concerns of an impending recession.

Throughout history, however, over the long-term equities have remained strong though periods of both war and inflation. It’s our opinion that vigilance during this period of wartime is especially warranted.

Stock market

The S&P 500 was down 4.60% for the quarter, its worst return since Q1 2020 when the index was down 19.60%. (Source: Morningstar)

US bonds were down 5.93% for the quarter. This is the third-worst quarter since the inception of the index in 1976 and the worst quarter since 1980 when the index was down 8.71% (Q1) and 6.56% (Q3). (Source: Bloomberg US Aggregate Bond Index)

This represents only the second quarter since 1976 where both stocks and bonds were down more than 4%. The first quarter of 1980 was the only other occurrence. (Source: Morningstar)

Historically, equity markets are robust during times of war and often turn positive in subsequent months and quarters. (Source: S&P Global, Bespoke Investment Group)

Interest Rates

The quantitative easing that began in Q1 2020 was extraordinary and bore a near-zero interest rate policy. In an effort to help stave off inflation, the Federal Reserve is beginning to tighten its monetary policy. In fact, the Fed hiked the fed funds rate by 0.25% in March of this year—the first time it increased interest rates since December 2018. The expectation is for a 0.50% increase in May. Interest rates are often viewed as a benchmark that influences everything from car loans to credit card interest rates. As the central bank tries to cool down the economy, the Federal Open Market Committee (FOMC) is now anticipated to raise interest rates at each of its remaining six meetings this year. This pace is unprecedented and will probably slow economic growth.

As shown in the chart below, the 2022 US Treasury Yield Curve is notably north of last year’s yields. (Source: JP Morgan Asset Management)

In parallel to rate increases, the average rates on 30-year mortgages are swelling to the 5% range today. For borrowers, this run-up marks an end to the exceptionally low rates that characterized the period following the global financial crisis of 2008 and 2009.



The consumer price index leaped to an annualized rate of 8.5%, the fastest pace of price increases since December 1981. This is up from 7.9% in February, and inflation has continued to make new 40-year highs for five straight months. (Source: Department of Labor)

Energy, housing, and vehicle prices are the primary contributors to inflation currently and excess government stimulus, supply chain issues, and now the Russian invasion of Ukraine all play a part. (Source: JP Morgan Asset Management)

As inflation grips the economy, we are seeing varying types of it. Slowflation causes a scenario in which the economy is growing very slowly while inflation is present. This already existed before the Russia-Ukraine conflict.

The possibility of a reoccurrence of stagflation after a 30-year hiatus is concerning investors. Stagflation is when we have high inflation, high unemployment, and slow or negative real economic growth. There were two periods in the 1970s that economists have defined as stagflation, 1974-1975 and 1978-1982. Both periods overlap with recessions. (Source: Forbes)

Supply chain issues, surging demand, limited supply, production costs, and excess relief funds all have an inflationary role to play, but undoubtedly, we think the $1.9 trillion American Rescue Plan Act of 2021 may be the main culprit.

Combatting Inflation with Dividend Stocks

The recent volatility in growth stocks has brought dividend equities back into focus. Stocks have generated returns well in excess of inflation over time, but not all categories of stocks do well in rising rate environments. Unlike bonds, some companies have the advantage of being able to increase their dividends above the inflation rate and have grown dividends at roughly twice the pace of inflation since 1990. (Source: Zacks Investment Management) For investors seeking to ensure that income from a portfolio keeps up with the pace of inflation, dividend-paying stocks may be a viable solution.

International Considerations (Impact to the US)

Any disruption to a country’s export readiness can affect worldwide supplies and GDP. In 2020, the US exported $2.16 billion in goods to Ukraine. During the last 25 years Ukraine’s exports to the US have increased at an annualized rate of 4%, from $417 million in 1995 to $1.11 billion in 2020. In 2020 the top exporters of sunflower-seed and safflower oil, were Ukraine ($4.71 billion) followed by Russia ($1.83 billion). (Source: The Observatory of Economic Complexity) Given the recent conflict, we expect food prices to continue to rise.

Russia is a small player in the financial world, making up only about 2% of the emerging markets index (Source: Morningstar), but dominates when it comes to natural resources—especially crude oil, gas, and grains.

The world has become more reliant on Chinese goods since the pandemic started in 2020. With the latest round of lockdowns imposed in Shanghai and Shenzhen because of fresh COVID-19 outbreaks and China’s zero-Covid policy, global growth and inflation may be negatively impacted. These two cities alone account for more than 16% of China’s exports. (Source:


We are long-term investors engaging with portfolio managers that we believe are extraordinary. We know from experience that often the greatest investment returns are birthed in crises like today.

 Consider these four suggestions:

  1. Stay diversified to mitigate risks as the market, economy, and inflation ebb and flow.
  2. Ensure that your financial goals are being met with your asset allocation and proper planning.
  3. Be prudent with cash. Ensure you have enough liquidity to meet your short-term obligations. If you have cash to invest, do so systematically with patience.
  4. Look to own high-quality stocks of companies that are healthy and profitable.


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As always, we are grateful for your continued trust in Roehl & Yi, and we ask that your first phone call be to us if you have any questions or concerns about your investments. May you and your family experience happiness and good health.

Disclaimer: This client newsletter is provided for informational purposes only. Nothing herein should be construed as the provision of personalized investment advice, nor should it be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without prior notice. Third-party data sources contained herein are for illustrative purposes only, are believed to be reliable, but we take no responsibility as to their accuracy. The newsletter contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially. As such, there is no guarantee that any views and opinions expressed herein will come to pass. Investing involves risk of loss including loss of principal. Past investment performance is not a guarantee or predictor of future investment performance.

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