Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

2nd Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

By Jason Teed

Equities were up for the quarter, finishing 2021 near all-time highs. The S&P 500 Index was the leader for the quarter with an 11.0% gain. The Russell 2000 small-capitalization index was the domestic laggard, up only 2.1%. Emerging markets were the worst performers, falling about 1.6%.

Growth stocks outperformed Value stocks for the quarter. Developed international markets made slight gains even as issues with energy and the supply chain continued to depress returns in those regions. The distribution of returns suggests a growing economic scenario, at least domestically.

Sectors were up for the quarter, showing no clear trend for risk appetite. Information Technology led performance, gaining about 16.8%. Materials also performed well, up about 15.6% after a disappointing third quarter. Energy lagged, up only 9.1%. Financials (+5.0%) also lagged, responding to expectations that the Federal Reserve will soon begin increasing interest rates.

Stocks performed well in 2021 due to significant growth in earnings, which were projected to have increased 45% year over year. Growth was primarily driven by increased consumer spending, a result of pent-up demand from lockdowns and social distancing in 2020. Earnings are unlikely to grow as much as they did in 2021, so equity markets may not rise as much in 2022 as they have over the past three years.

Safe-haven assets rose slightly for the quarter. Gold rose about 4.1% for the quarter after experiencing a significant spike in November, and long-term Treasurys gained about 3.2%. These asset classes will likely face headwinds in 2022 as interest rates are expected to rise. However, gold can mitigate some of the risk of inflation within a portfolio, when market volatility increases and investors use gold as portfolio protection, which often drives the price up.

Overall, the shape of the yield curve has not substantially changed over the last three months. However, the entire curve has shifted upward as rates have begun to rise, particularly around 2–3 year maturities. This suggests a healthy market pattern in the long term, with expectations for rising rates in the coming years. Rates remained at historically low levels, but the Federal Reserve is expected to raise rates soon. Higher rates put downward pressure on both equity and bond prices (bond prices are inversely related to rates), and companies will find it more expensive to grow through borrowing.

The recent strong performance of assets led to quarterly gains in about 90% of our strategies. About 95% of OnTarget Monitors for the quarter were “in the yellow” or better, with 87% “OnTarget” (“in the green”) or better (“in the blue”).

Our top performers were mostly trend-following, tactical strategies that actively trade into and out of the market. Our socially conscious strategies also did well, powered by our Quantified Common Ground Fund, which outperformed the S&P for the quarter by over 6%.

The quarter was challenging for bond-based and sector-based strategies, as bonds didn’t perform well. Several sector rotations began to trend but then immediately reversed, causing small whipsaw losses that did not appear directly correlated to broad market movements.

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