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.