Wealthspire Advisors

Throughout this year, Wealthspire Advisors’ Investment Team has spent significant time discussing inflation and the Federal Reserve and felt it was important to pivot towards the story in financial markets for 2022, which begins and ends with fixed income.

It is as though the finance world decided to take a page out of the music industry's book by recycling a melody with only slight variations.

In a continuation of the first quarter, stocks and bonds struggled to find any sort of traction in the second quarter, leading to one of the roughest six-month starts to a calendar year on record.

We put together a histogram of the last 96 years of annual returns, bunching them into percentile ranges. You might expect something that looks like a bell curve, but you would be very wrong! As advisors, we constantly remind clients about the necessity to think long term. The problem is that it’s hard at any age to think in 30-year terms, especially in the middle of a year like 2022.

• Without statistical support, political party and tax regime changes have not translated to discernable market performance.
• Global fiscal and monetary stimulus during COVID already far surpass what the world saw during and after the Great Recession.
• Equity and credit markets domestically and abroad continued to shrug off headlines, helping recoup some if not all of the losses from earlier this year.
• Anchored short-term interest rates helped investment grade fixed income yet another quarter.

A point we have increasingly been making is the self-mitigating nature of: (1) market returns and (2) capital market assumptions (“CMAs”). There is a demonstrable pattern of CMAs coming down after significant rallies in equity markets and going up after a decline.

Be ready to hear this described as the worst since “the Great Depression”, or “since WWI”, or the “Spanish Influenza”, etc. The vast majority of those lost to the Spanish Flu suffered from secondary bacterial (not viral) respiratory infections, today curable by antibiotics.

Unlike the weather, where predicting over the long term has much more error than predicting for tomorrow, we have a better idea of probable outcomes for how markets will perform in the 2020s than how they will do in 2020.

One of our least favorite things about investing is the remarkable imprecision of language. There are so many terms like “risk,” “momentum,” “smart beta”, and “asset class” (among many others) that have no precise definition– and yet, everyone assumes they know what those terms mean.