Daily % changes: S&P 500 and Bloomberg Agg
Source: Bloomberg Finance, L.P., FS Investments, as of May 19, 2022. Bloomberg Agg refers to the Bloomberg U.S. Aggregate Index.
- Stocks fell again this week as Walmart and Target followed up strong retail sales reports on Tuesday with disappointing Q1 earning results on Wednesday. The contrasting data points highlight the extraordinarily uncertain environment in which investors are operating today.
- Since the start of this year, investors have been battling through a potent combination of volatility drivers – tightening monetary and fiscal conditions, unrelenting inflation, a war in Europe, and ongoing closures in China – that have accelerated as the year has progressed.
- The significant macro uncertainties have driven market volatility notably higher. As the chart shows, stock and bonds’ daily movements were relatively mild in 2021 compared to this year, when it has been common for the S&P 500 to see moves of 2% or more.1 As expected, bond movement has been less extreme, yet volatility has clearly ticked up from 2021.
- The chart highlights the breakdown in the traditional relationship between stocks and bonds as correlations have risen while returns are deeply negative across both – the S&P is down about -17% YTD while the Agg is down -9.5%.1
- Amid a volatile market with no clear end in sight, investors may be wise to remain focused on companies that have the potential to thrive in a slowing economy while also emphasizing investments with limited correlation and downside protection potential.