January: Bridge Collapse Pittsburgh
On January 28th, 2022, the 447-foot Fern Hollow Bridge connecting major areas of the Pittsburgh’s east side of town collapsed in the early hours as a Port Authority bus carried morning commuters. Fire responders rappelled down the ravine to haul victims out. Miraculously, there were no severe injuries as it was before the heavily trafficked morning rush hour. The bridge collapse and neglect of America’s infrastructure were on full display in Western Pennsylvania.
Markets were crumbling across many asset classes to start 2022. The S&P 500 was off by 5.17% to start the year and the bond market, as represented by the Bloomberg’s U.S. Aggregate Bond Index, pulled back 2.15% as inflation worries began taking hold on investor sentiment.1
February: Russian Invasion of Ukraine
On February 24th, 2022, Russia launched a full-scale invasion of neighboring Ukraine. In a blistering attack via land and air, Russia pronounced its “special military operation” to demilitarize the country. The Western world created a united front in support of Ukraine and imposed immediate sanctions on Russia. Most experts predicted a quick Russian victory given the strength and advantages of Russia. By the end of 2022, we began to realize that the resilience of the Ukrainian people, the collective support of the Western nations, and the inadequacies of the demoralized Russian army would offer many different outcomes than those foreseen in the first few weeks of the war.2
As the war in Ukraine took hold and energy prices skyrocketed, markets sold off. The S&P 500 was down 3% and the MSCI EAFE, representing international developed countries, dropped by 1.7% in February. The Bloomberg U.S. Bond index dropped 1.1% in February, and inflation would remain elevated with little end in sight as energy prices jumped dramatically.3
March: Will Smith Oscar Slap
In bizarre T.V. news, actor Will Smith walked onstage and slapped comedian Chris Rock across the face in response to Rock’s joke about Jada Pinkett Smith. Later that evening, Will Smith won the Best Actor award and gave the longest speech in Oscar history. After public astonishment across wider audiences, the Academy Awards imposed a ten-year ban on Will Smith. Chris Rock did not press charges and has largely remained quiet on the terrible incident.
As we processed the Will Smith attack on Chris Rock, investors were processing what to make of the various markets. The S&P 500, representing the domestic large cap market, rallied by 3.7% in March followed by the Russell 2000, representing small domestic companies, rallying by 1.25%. The MSCI Emerging Markets index, representing developing countries, dropped as Russian securities were effectively wiped out, and China struggled to re-open in a post-quarantine world.4
April: Boris Johnson “Party-Gate”
In milder global news, the Prime Minister of the United Kingdom, Boris Johnson, was fined $50 relating to a lockdown violation while attending a party. While the actual offense may seem tame in a world mired in scandals, what was likely behind the uproar was the U.K. remaining lethargic in economic growth for too long. For context, the average Gross Domestic Product, or G.D.P., per person closely mirrored that of Mississippi, the lowest ranked state for GDP in the United States.5
While the U.K. was wrapped up in “party-gate”, the markets were in no party mood either. The S&P 500 was down 8.7% and the Bloomberg U.S. Aggregate Bond Index was down 3.8%. Investors were reacting to hot inflation data and selling both sides of a traditional balanced portfolio.6
May: Inflation Heats Up
The consumer price index for May rose by 8.6% from a year ago, registering as one of the hottest numbers in almost forty years. While the surge in energy prices was one of the main culprits, core inflation, which excludes food and energy, was up 6% suggesting rising prices were a looming issue beyond the headline inputs. While interest rates and inflation pushed higher, unemployment remained extremely low as the economy forged ahead and the pandemic changed employee behaviors.7
Investors digested heated inflation and rising interest rates with a surprisingly subdued month of returns. The S&P 500 returned .18%, and most other equity markets were relatively flat as well despite the intra-month volatility of an early sell-off and a monster rally later in the month. It reaffirms that market timing in the short term is impossible.8
June: The Platinum Jubilee of Elizabeth II
Quenn Elizabeth II celebrated her seventieth year on the United Kingdom’s throne. Her reign began at the young age of twenty-five on February 6th, 1952. While the Queen has had her fair share of controversies, both within her family as well as the contentious empire that stretched across the globe and slowly decolonized, most Britons recognized her strength and character among a time of divisive leaders.9
Markets were not in a jubilee celebration. The S&P 500 sold off by 8.2%, and the MSCI EAFE sold off by 9.2% as a lingering war in the Ukraine raged on, and recession fears remained front and center. The Bloomberg U.S. Aggregate Index dropped by 1.6% and was then off by over 10% in the first six months of 2022. For perspective, that is one of the worst bond returns for six months on record.10
The first half of 2022 investment markets were driven by a substantial exogenous risk from a war in the Ukraine and an endogenous risk of untamed inflation. The second half of the year would be focused on how these two events can be solved quickly and without further distress.