MARKET COMMENTARY

Investment Committee Meeting Highlights
May, 2022

MARKET UPDATE

April was a sea of red numbers across capital markets with the combined forces of inflation, weaker than expected economic performance, and a Fed shifting into a higher gear all taking their toll on markets. Not helping matters were a few higher-profile earning misses and first quarter results losing momentum from recent quarters.

Bonds did not provide a safe haven either in an environment with the Fed raising rates and the economy contracting last quarter. Typically, the market can digest rate hikes more easily on the back of strong economic performance. Anxiety around the coming quarters can be seen in the US yield curve, which is effectively flat from the 2-year to the 30-year. Unsurprisingly, short-term bonds outperformed in a relative basis, with the Bloomberg US Aggregate 1-3 Year index down 0.56% compared to the US aggregate down 3.79%.

First quarter GDP showed a surprise decline to start the year. Economists surveyed by Bloomberg had expected the economy to grow at a 1.0% annualized rate, but instead witnessed a decrease of 1.4%. The Fed meets again this afternoon and the market expects a 50-basis point hike, the first two-step hike, as the Fed tries to move faster to combat inflation.

ADVISORS’ PERSPECTIVE

So far in 2022, we have seen most major asset classes suffer, with the S&P 500 down nearly 13% and the Bloomberg US Aggregate down 9.5%. Correlations tend to rise in drawdowns but the recent performance in the bond market has been particularly difficult over the last few months. The Bloomberg US Aggregate index has the worst start to a year since the index began publishing daily data in 1989.

April was a discouraging month for investors as markets continued to contend with the Federal Reserve’s monetary tightening, rising rates, persistent inflation, Covid case spikes in China and the ongoing war in Ukraine. The combined environment has made it particularly difficult for the bond market to get a sense of direction with rapidly changing expectations over the last few months combined with concerns over the direction of the economy.

The last two weeks of April saw falling prices across most global equities, especially the last trading day of the month, which has confirmed a negative trending market.  Continued fears about the magnitude of future Federal Reserve rate hikes and the unexpected negative GDP headline likely put pressure on any risky assets.

The whispers of recessions have struck fear in investors as Q1 GDP was negative for the first time since the beginning of the pandemic. However, keep in mind that the economy is much more complex than the GDP calculation alone. Labor, housing, and spending look strong while other areas, such as the trade deficit, look poor. Time will tell if we are currently in a recession, but our economic research sees the economy as normal – relative to history.

All eyes will be on The Fed this week and leading up to the June meeting. Since their last meeting, the outlook for the economy has deteriorated and markets have thrown a tantrum. Fed officials have been far more outspoken about their determination to fight inflation with rate hikes, and that has injected more fear of an economic downturn into markets.

During these troublesome times, we emphasis more than ever to follow the data and not be a prisoner of the moment. We are working diligently behind the scenes to put every client’s portfolio in the best position for success. Our partnership with Helios allows us to recalculate our models on a bi-weekly basis, and if necessary, to make appropriate changes based heavily on the data drawn from the current market and economic conditions.  As always, should you have any questions about your personal finances, please contact our office at 574.889.7526 to schedule a conversation with your advisory team.

DISCLOSURE

This update is not intended to be relied upon as forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Hilltop Wealth Solutions to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Additional information about Hilltop Wealth Solutions is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary Report which are accessible online via the SEC’s Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 801-115255. Hilltop Wealth Solutions is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting, or tax advice.