By Tom Burnett CFA
Investors are experiencing a difficult year in 2022 with both the equity and fixed- income markets providing negative returns through August 23, 2022 (all data taken from WSJ.com). The stock markets have been weak in 2022 as exemplified by the -13.2% return for the S/P 500 Index. The NASDAQ Composite has fared worse with a decline of 20.5%. The fixed-income markets have not provided investors with any relief as interest rates have risen in 2022 pushing bond prices lower. The yield on the Ten-Year Treasury has risen to 3.11% this year from a yield of 1.51% at the end of 2021. Similarly, the yield on the 30-Year Treasury has increased from 1.91% at the end of 2021 to 3.31% currently. Inflation pressures have motivated the Federal Reserve to begin to tighten monetary policy by raising short-term rates along with a more forceful public statement policy of attacking inflation aggressively.
The impact of inflation and a less accommodative Fed policy stance have had a clear negative impact on fixed-income returns. The Index of 20+Year Treasury bonds is down 17.5% this year. The main municipal index is down 7.1% and the index of mortgage securities is down 8.2%. The High Yield 100 Index is down 9.7% for the year. Overseas markets are not providing positive returns either. The Global Government Index is down 9.1% and the Emerging Markets Index is off by 16.5% this year.
All recent indications from Federal Reserve officials suggest continued upward pressure on short-term rates which will continue to push bond prices lower. Most observers expect the Fed to remain vigilant in its anti-inflation direction with short-term rates expected to rise throughout the remainder of the year. The next official meeting of the Federal Reserve Open Market Committee is set for September 21 when the Fed will update its policy stance and release its quarterly update of economic forecasts and projections.
Tom Burnett CFA is Director of Research