Inflation’s impact on the stock market
Stocks can generally act as a buffer against the long-term impacts of inflation.
The first quarter of 2022 was notably weak for most capital market returns with the S&P 500® Index losing 4.6% and the Bloomberg U.S. Aggregate Bond Index losing 5.9% for the three-month period. Only 13 times since 1980 (or 8% of the 169 total quarters) did both stocks and bonds turn in negative returns; usually, a flight-to-quality into bonds offsets weak periods in equity markets. In contrast, both stock and bond indexes were positive in 60% of the quarterly periods since 1980. Of the previous 12 periods of “double negative” returns, only three times did a blended 60%-equity/40%-bond model portfolio exceed losses of -5.1% with each occurrence coming during a recession (1980, 1981, and 2008).
While returns have been difficult so far this year, history suggests a reversal may be likely. In the 12 “double negative” occurrences before last quarter, the 60/40 portfolio return has been positive over the next 12 months. The S&P 500 averaged a 13.9% return during these 12-month periods, while the Bloomberg Aggregate Bond Index returned 10.2% for a 60/40 blended return of 12.5%. This highlights that when markets are volatile and the outlook uncertain, the bad news is typically already priced into markets. Any attempts to time the market’s bounce-back can detract from the overall performance.
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Except where otherwise indicated, the views and opinions expressed are those of Nationwide as of the date noted, are subject to change at any time and may not come to pass.
Bloomberg US Aggregate Bond Index: An unmanaged, market value-weighted index of U.S. dollar-denominated, investment-grade, fixed-rate, taxable debt issues, which includes Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities and commercial mortgage-backed securities (agency and non-agency).
S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.
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