A First Quarter Review

There’s an old expression on Wall Street that says, “So goes first quarter, so goes the year.” When considering 2022, let’s hope this expression does not reflect what’s to come. The first quarter has been ugly. As of early April, the S&P is down 8 percent, the Dow Jones is down 2 percent and the Nasdaq is down 11 percent, according to the Washington Post. I want to talk about the reasons why I don’t think this expression rings true for 2022.

It would be easy to point to Ukraine and blame the first quarter’s ugly numbers on Putin. While the war in Ukraine certainly plays a role, the bigger reason the first quarter is down is due to interest rates and inflation concerns. The market started to go down in January, well before the Ukraine issue started. A client of mine told me they sold their house this past January for $130,000 above the list price. For those selling a home, this could not be better news, but for buyers and investors, this could not be worse news. The housing market is proof that things are abnormal. Supply is so high because of low interest rates; there’s not enough demand to meet it, so buyers are forced to pay crazy high premiums to secure homes. This needs to change and the Federal Reserve is trying to determine the best way to implement steps to do so.

In early January, everyone had an opinion on what the interest rates were going to do. I’m not talking about my or your opinion either. I’m talking about the opinions of the biggest financial companies, and they expressed an opinion that caused market uncertainty. Another famous Wall Street expression goes, “Buy on the rumor; sell on the news.” The rumor is that rates were going to go up, but nobody knew by how much and for how long. This uncertainty led to the market selloff that precipitated the first quarter numbers I mentioned earlier. Since then, we have seen the Fed raise rates in order to stabilize things. I do not think they are finished, but it’s hard to tell where it will end and what rate they will ultimately keep it at. I agree wholeheartedly, however, that they need to continue raising rates because markets won’t improve until they do.

Ukraine adds a fascinating element to all of this. I was in a high school economics class when I first realized that war is good for our economy. I remember it like it was yesterday. You could make an argument that it was the day I became an adult — the moment I realized that something as awful as war can have a positive impact on a 17-year-old kid in South Dakota.

Without Ukraine, the Federal Reserve’s action to increase rates could have had more of a negative impact on our economy for a variety of reasons, but it’s possible that this was the thing the world needs to get things going again. It wasn’t Franklin D. Roosevelt’s New Deal that got us out of the Great Depression; it was World War II. All of this is terrible to think about when you consider the plight of those in Ukraine, but that’s the unfortunate thing about our economy: war is good for business.

If there is a silver lining in this Ukraine crisis, it’s that it will have a positive impact on the quarters to come. Maybe not in the near term, but in the long term. Countries all over the world are trying to aid Ukrainian citizens and doing so has a positive impact on many industries. Let’s hope that impact can lead to a positive result for those directly at risk in Ukraine. I pray that it does.

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