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Asset Class Reports
Canterbury Review: First Quarter 2022

Global Shock Following Russian Invasion of Ukraine

  • U.S. equities fell in the first two months of the quarter before rebounding slightly in March. Fed tightening, inflation expectations, and the Russia/Ukraine war weighed on the equity markets. The negative quarter marks the first quarterly decline since the beginning of the pandemic in early 2020.

  • European equities and emerging markets (EM) equities fell sharply in the quarter. Russia was removed from the MSCI EM Index, and China equities continued its underperformance as COVID spiked and lockdowns were imposed. U.S. dollar strength in the quarter was an additional headwind to both European and EM equities.

  • During the first quarter of 2022, the Fed raised the key interest rate by 25 basis points and signaled further hawkish guidance to combat persistent inflationary pressures. Chairman Powell is prepared to move more quickly to reduce policy support if supply/demand imbalances don’t improve. A 50 basis point increase in the federal funds rate is on the table for the next Fed meeting. The Federal Reserve ended its asset purchasing program in early March and is expected to announce a plan for reducing its balance sheet at the next FOMC meeting in May. Balance sheet reduction could reach $95 billion per month.

  • The treasury yield curve experienced volatility across maturities. The intermediate-term of the yield curve increased while the long end of the curve flattened, resulting in an inverted yield curve. As a result, bonds are on track for their worst performance in over 40 years. Investment grade (IG) spreads widened by approximately 24 basis points (bps) over the quarter, while high yield (HY) spreads widened by 33 basis points.

  • Commodity prices continued to rise due to supply constraints and elevated demand. Energy prices increased as a result of sanctions levied on Russia. Major developed economies are looking for alternative sources of energy outside of Russia. The Case-Shiller Home Price Index remained persistently high as demand for U.S. real estate outpaced supply.


To view the first quarter reports, click on the links below: