Market Update from PIA | May 2022

Anatomy of a Monetary Tightening Cycle

I expect some readers will recall an electronic board game called “Operation” from their youth, first released in the mid-1960s and quite popular in the 1970s.  I use the word “electronic” very loosely, simply because it required batteries, long before high-tech video games played by the younger generation today were conceived.  For those unfamiliar, the game involved the dissection of small plastic pieces of the human body with tweezers connected to a wire.  It required a steady hand, with the object being to not touch the metal sides of the anatomy during extraction.  Doing so would create a loud buzzing sound and vibration to make it clear to all players that your attempt was unsuccessful.  Despite knowing the artificial “jolt” would eventually come (especially when targeting the most difficult to acquire funny bone) it was uncanny how the human reaction was to jump with each eventual failure. 

This reaction comes to mind when considering the response of fixed income investors (often referred to as the “smart money”) to the first rate hike in the monetary tightening cycle which began in March.  Despite clear expectations being set by the Fed, with transparent communication for nearly a year that short-term rates would need to be increased, fixed income markets were met with a jolt, in the form of rapidly falling prices and rising rates.

In This Update:    Investment Spotlight    |   Stock Market Review   |   Economic Review Chart of the Month   |   Closing Statements


April Showers Brought Floods of Volatility

The volatility measure of the S&P 500 (VIX Index) ended the month near the mid-30s, well above average.  Fixed income volatility (MOVE Index) took a similar path, well above its historical norms.  Spiking bond yields (the 10-Year U.S. Treasury yield rose the most in a month since December 2009) have made the promise of future profits from high tech growth stocks less appealing.  The largest market cap technology stocks (Meta, Apple, Amazon, Netflix and Alphabet), touted as a safe haven for compounding sustainable earnings only months ago, lost more than $1 trillion in combined market value in April.  Investors’ attention has shifted to more cyclically oriented and defensive sectors of the stock market.

Sky high commodity prices were exacerbated by the ongoing war in Ukraine.  Prices for corn and soybeans approached new record territory, putting further upward pressure on food costs.  Despite some signs of easing supply constraints in shipping receipt data, Russia’s move to cut off natural gas to Poland and Bulgaria may be the start of the next leg of disruption.  Investors’ concerns about an economic slowdown in the U.S. heightened, with worry of the Fed potentially creating a damaging hard landing.  Fed supporters’ conviction eroded last month as it became much harder to defend against the argument that the spicket of overly accommodative quantitative easing policies was left on for too long. 


APRIL 2022

YTD 2022

S&P 500 Index



Russell 2000 Index






Barclays US Agg. Bond Index



FTSE 3 Mo. T-Bill Index



Despite an exorbitant amount of forewarning before the start of the Fed Funds Rate hiking cycle, fixed income markets were sent reeling with a spike in volatility and rise in rates not seen in decades.


A Month to Forget, With Lessons to Remember

The S&P 500 declined by -8.7% in April, unable to secure a positive weekly return during the period.  The technology-focused NASDAQ Composite suffered the worst monthly drawdown since 2008, lower by -13.2%.  Both indices have had a very difficult start to the calendar year.  The S&P 500 return of -12.9% is the worst return for the first four months of the year since 1939 and the NASDAQ (at -21%) is off to the worst start in its recorded history.

The defensive nature of the Consumer Staples sector provided a modestly positive return during the month, while all other index sectors were in the red.  Communication Services, Consumer Discretionary and Information Technology stocks were particularly hard hit.  Fixed income has not provided protection to diversified portfolios thus far in the year as rapidly rising interest rates have pummeled bond prices. 


APRIL 2022

YTD 2022

Communication Services



Consumer Discretionary



Consumer Staples















Information Technology










First Quarter GDP was Weaker than Anticipated

The first estimate of Gross Domestic Product for Q1 2022 contracted by -1.49%, below consensus estimates for modestly positive growth.  A meaningful pullback in net exports and inventories were contributing factors to the decline in the total goods and services produced in the United States.  Personal consumption was positive but slowed toward the end of the quarter amid rapid price increases in food and gasoline and waning government stimulus.


Mortgage Rates Spiked at the Fastest Pace in History

Source: Redfin

If you are old enough to remember the game of Operation, then you likely also remember waiting in long gas lines in the 1970s on odd and even days based on your license plate number, and perhaps recall the high teens annual interest rates earned on passbook savings accounts in the 1980s.  Remarkably, the percentage change in 30-year fixed mortgage rates over the past year spiked faster than both those periods of high inflation and sky-high rates, by an eye popping 68%, as shown in the chart above.


Looking Ahead

All eyes will remain squarely focused on the Fed with a highly anticipated 50 basis point hike made at the time of this writing.  The magnitude and pace of additional hikes expected to come this year is front and center on all market participants’ minds.  Anticipation of higher rates has sent the U.S. dollar soaring relative to other currencies.  The greenback had its largest monthly jump in a decade in April.  A rapidly rising dollar creates headwinds for U.S. exporters.  Given the negative impact the latest balance of trade report had on GDP, this is a factor we will be paying close attention to in coming quarters. 

The current volatile state of financial markets is a firm reminder of the rationale for the premium that exists for risk assets.  While unpleasant, a periodic reminder that there is no free lunch in investing is necessary to create opportunities for future gains.  The cycle of fear and greed gyrations, while at times stressful, is a necessary dynamic in a “zero sum” market in which each trade inherently involves a winner and loser. 

Please reach out to one of your Account Officers or any member of our Executive Leadership Team to discuss topics raised in this letter or anything else we can be helpful with.


Meet The Plimoth Investment Advisors Executive Leadership Team

Steven A. Russo, CFA

President & Chief Executive Officer

Louis E. Sousa, CFA

Senior Vice President & Chief Investment Officer

Edward J. Misiolek

Senior Vice President & Operations Officer

Teresa A. Prue, CFP®

Senior Vice President & Head of Fiduciary Services and Administration

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