US investors shift to safe havens amid volatility

Geopolitical uncertainty, worries over hawkish Fed rock asset prices


Reuters March 27, 2022
Investors next week will be watching data on US inflation, due out on Thursday. photo: reuters

NEW YORK:

Side-by-side declines in US equity and fixed income markets are pushing investors into cash, commodities and dividend-paying stocks as geopolitical uncertainty and worries over a hawkish Federal Reserve rock asset prices.

With the first quarter of 2022 winding down, the S&P 500 is down around 5% year-to-date, after falling as much as 12.5% earlier in the year. The ICE BofA Treasury Index, meanwhile, was recently down 5.6% this year, its worst start in history. 

Investors have traditionally counted on a mix of stocks and bonds to blunt declines in their portfolio, with stocks ideally rising amid economic optimism and bonds strengthening during times of uncertainty.

That strategy can go awry, however, and market gyrations stemming from Russia’s invasion of Ukraine, soaring commodity prices and the Fed’s hawkish tilt have combined to make it harder to follow the playbook this time around.

Though a sharp bounce in stocks has more than halved the S&P 500’s losses for the year-to-date, some investors are wary the rebound may not last and are seeking to cut their exposure.

“We are in a perfect storm right now,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management. “We’ve been in periods of heightened geopolitical risk before but this one feels a little different. The negative outcomes could be much more severe and broad.”

Nixon is increasing stakes in agricultural and energy companies, as well as real estate investment trusts (REITs), which have acted as an inflation hedge in the past.

Published in The Express Tribune, March 27th, 2022.

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