The first quarter of 2022 is in the books, and it was a eventful one. We ended the day with some very sharp moves in bonds and equities amid some last-minute action. Stocks closed very poorly, but breadth was not that terrible, as it was mostly index-driven. There were more new highs and lows.
Equities started with a collapse in January that was largely driven by concerns about inflation and the Fed. That led to some bounce action, but then stocks were hit by the news of an invasion of Ukraine by Russia. This produced soaring energy and commodity prices, but in mid-March, an extremely powerful bounce started and finally started to slow two days before the quarter ended.
Bonds had even more dramatic action as they produced their worst quarter since 1980. This was driven primarily by the highest inflation readings in 40 years.
The obvious question at this point is: now what?
There is no shortage of bearishness as worries about a potential recession are building, and there are no signs that inflation is abating. Supply chain problems persist, and the Ukraine-Russian situation looks to drag out for quite a while.
The bulls have been hopeful that the worst has been priced in, and they have enjoyed a very strong run, but there are skeptics who believe it was just a counter-trend rally that is going to evaporate very quickly. There has been some better stock-picking lately, but headline risk is high, the negative narrative compelling, and the technical conditions overbought.
I don't know what is going to happen in the second quarter of 2022, but I'm quite certain we will have plenty of volatility to aggressively trade.
Have a good evening. I'll see you tomorrow.