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April 2022 Monthly Review

"A Country Boy Can Survive"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back

The title above is from a country song written and released by country legend, Hank Williams Jr. in 1982. It eventually reached #2 on the country Billboard charts. It came to mind because of a line in the very beginning of the song, “the interest is up and the stock market down.” Of course, the same line could be written about today’s economic and market situation. Things were a little different in 1982. We were coming out of the recession of 1980, and GDP was -1.8% in the year, unemployment stood at 10.8%, inflation was coming off a 10% level from 1981, and the Fed Funds rate had reached 20% the same year! Yikes. Even from those hard-to-believe-now numbers of over four decades ago, we survived. We even prospered as the supply-side policies of the Reagan presidency came to the forefront as inflation came down and stock markets rocketed until the big short-lived market correction (Black Monday) of 1987. We continue to be mindful of history because we have the ability to learn from it…good and bad…and throughout history, up to and including current conditions…we have survived.

The month of April was not kind in almost all of the major asset classes. The optimist in us believes that the rainy month is just part of the ongoing process that will eventually lead to blooming flowers, if not in May, then in the months that follow. The large-cap S&P 500 was -8.72%, and the small-cap Russell 2000 was down even more at -9.91%. International markets were down as well, as they deal with their own inflationary concerns and continued supply chain disruptions heightened by the Russia/Ukraine conflict. Most investors understand that stock markets go down…for various reasons. They saw it recently in the early stages of the pandemic, when the S&P 500 fell -38% in a five-week period between February and March of 2020. What most are really not used to is what we have seen so far this year in the bond market. Core bonds were down another -3.79% in April, and -9.50% YTD. There is good reason for the angst and uneasy feeling. We really have not seen this kind of sustained, consistent pressure on bonds…ever. Remember, the worst calendar return for the Bloomberg Aggregate was -2.92% in 1994. Further, including 2021, when bonds were -1.50%, there have been only four negative calendar years for core bonds in the last five decades. In all cases, returns three and five years later were higher than the long-term average. None of this is to suggest that core bonds are a screaming buy right this second, but history continues to remind us that yesterday’s losers tend to be tomorrow’s winners.

A Look Ahead

We had two economic inflation barometers released this week with the CPI (Consumer Price Index) and PPI (Producer Price Index). Both numbers showed continued inflationary pressures with the CPI + 8.3% over the last year and PPI +11% over the same period. However, both were lower than the prior month, which gives some hope for those in the “inflation has peaked” camp to squeeze out some positive vibes from what we all have experienced as we go to the gas pumps, grocery stores, restaurants, etc. Everything is costing more. Even though we had believed that inflation was going to be more of a problem dating back to last year, we also recognize that if there is some data that suggests we might be on a path to some normalcy, it could/should be a good thing for the markets. Until then, we continue to take advantage of opportunities, even when it is a little tougher to do. Buying those things that have been beaten down…it’s what a country boy would do to survive.