By Tom Burnett CFA
Through the first two months of 2022, the commodities sector is the only positive performer among the three major asset categories—stocks, bonds, commodities. Looking at data from the WSJ.com website for March 2, 2022, the evidence is clear and compelling. The Bloomberg Commodity Index is up a stunning 20.3% in the first two months of the year. The Index is led by a 37.5% increase in the price of crude oil and a 22.6% jump in natural gas prices. The S/P Energy Select ETF is the only sector fund with a positive performance this year as it has increased by 21.9% from the end of 2021. The global economic recoveries off the Covid pandemic have spurred a large increase in demand for energy products which has been further stimulated by the Russian invasion of Ukraine. That invasion has also set off a strong rally in the grains—the price of wheat is up 30.0% this year—as the Ukraine ‘bread basket’ struggles to maintain harvests and exports. Gold and silver have also benefited from the European uncertainty this year. So far, silver is up 9.5% and gold has risen 6.3%.
In contrast to the strong performance of commodities this year, stocks and bonds have been weak. The bond market has recently benefited from a ‘flight to safety’ by the events in the Ukraine, but the U.S. Total Bond performance is down 3.0% this year. The Index of 20+Year Treasury bonds is down 4.6% so far. Stocks have been even worse performers. The S/P 500 Index is down 9.7% and the small stock S/P 600 Index is down 7.9%. Large cap stocks have not performed any better, the Dow Jones Industrial Average is down 8.4%. The tech sector has also been hammered as shown by the 13.5% decline in the NASDAQ Composite Index. European stocks have not been a safe haven either. The Euro Stoxx Index is down 12.2% this year. In Asia, stocks have done relatively better, but the Shanghai Index in China is down 4.1% and the Nikkei Index in Tokyo is down 6.8%.
Several negative factors are working this year to depress investment returns. High inflation, a more restrictive Federal Reserve policy and a geopolitical conflict in Europe are the primary culprits. Stock market investors must steel their nerves for large, volatile swings up and down, as these forces play out over the rest of the year. The VIX Index of volatility closed on March 1 at 33.4, up dramatically from the 17.6 reading at the end of 2021. Most observers expect these bumpy rides to continue, at least until the Russia-Ukraine conflict is settled, which may take many months to resolve.
Tom Burnett CFA is Director of Research