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Gene Walden
Senior Finance Editor


Interest rates rise, stocks stabilize, jobs surge in choppy 1st quarter

By Gene Walden, Senior Finance Editor | 04/07/2022

Thrivent Asset Management Contributors to this report: Steve Lowe, CFA, Chief Investment Strategist; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Model Portfolio Manager

Rising inflation and the Ukraine invasion played havoc with the markets throughout the 1st quarter of 2022. Stocks tumbled early before regaining their footing in March, while rising interest rates drove bond prices down, as the Federal Reserve (Fed) initiated a tightening monetary policy aimed at taming inflation.

The S&P 500® ended the quarter down about 5% while the bond market experienced its worst quarterly performance in years, with the Bloomberg Aggregate Bond Index declining approximately 6.5%. With inflation on the rise, the Fed raised rates 0.25% in March and indicated that additional rate hikes would be forthcoming throughout the year.

On the bright side, employment growth continued to surge in the 1st quarter, as employers added nearly 1.7 million new jobs. The unemployment rate dropped from 3.9% at the end of 2021 to 3.6% at the end of March – the lowest level since the pandemic began in February 2020.

As more Americans returned to work, personal income increased by 0.5% in February, according to the Bureau of Economic Analysis, while disposable personal income (DPI) was up 0.4% and personal consumption expenditures (PCE) rose by 0.2%. However, when factoring in the effects of inflation, real DPI dipped 0.2% and real PCE declined 0.4%.

Retail sales have also bounced back. Compared with a year earlier – during the peak of the pandemic – retail sales were up 17.6% in February, according to the Department of Commerce (DOC).

Manufacturing has also remained strong, with economic activity in the manufacturing sector improving in March for the 22nd straight month, according to the Institute for Supply Management (ISM). While manufacturing growth has been impeded by supply chain issues, 15 of the 17 industries tracked by ISM reported growth for the month. According to the report, “in March, progress was made to solve the labor shortage problems at all tiers of the supply chain, which will result in improved factory output and supplier deliveries.”

Drilling down

U.S. stocks rebound in March

After dropping 8.23% through the first two months of 2022, the S&P 500 Index bounced back 3.58% in March. But for the 1st quarter, the index remained down 4.95%, from 4,766.18 at the close of 2021 to 4,530.41 at the end of March. The total return of the S&P 500, including dividends, was up 3.71% in March but down 4.60% for the 1st quarter. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index also bounced back modestly in March, up 3.41%, for the month after dropping 12.10% through the first two months of the year. Through the 1st quarter, it was down 9.10%, from 15,644.97 at the end of 2021 to 14,220.52 at the March close. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales edge up

Retail sales began to move up in the 1st quarter as consumers recovered from the pandemic. After an increase of 3.8% in January, retail sales were up 0.3% in February, according to the March DOC retail sales report. Compared with the same period a year earlier, retail sales were up 17.6% in February.

Auto sales were up 0.9% for the month in February and 17.2% from a year earlier; building material sales were up 0.9% for the month and 17.0% from a year earlier; and department store sales were up 1.6% for the month and 22.8% from a year earlier.

Non-store retailers (primarily online) were down 3.7% for the month but up 13.8% from a year earlier. Restaurants and bars continued to recover, with sales at food services and drinking establishments up 2.5% for the month and 33.0% from a year earlier.

Unemployment drops to 3.6%

The economy added 431,000 new jobs in March following the addition of 750,000 new jobs in February and 504,000 new jobs in January, according to the Employment Situation Report issued April 1 by the Department of Labor. The unemployment rate dropped by 0.2% in March for the second consecutive month to just 3.6%, which is generally considered full employment.

Employment growth remained strong in several industries, including professional and business services, leisure and hospitality, food services and drinking places, manufacturing, and retail.

Average hourly earnings for all employees on private nonfarm payrolls was up $0.13 per hour in March at $31.73 per hour. Over the past 12 months, average earnings have increased by 5.6%.

Energy leads all sectors by wide margin

The Energy sector of the S&P 500 moved up 39.03% in the 1st quarter, while all other sectors except Utilities suffered declines for the quarter. Utilities, which led all sectors in March with a gain of 10.36%, was up 4.77% in the 1st quarter. Communications Services posted the biggest quarterly drop, down 11.92%, followed by Consumer Discretionary, down 9.03%.

The chart below shows the results of the 11 sectors for the past month and 1st quarter:

Treasury yields jump

Bond yields moved up in the 1st quarter as inflation continued to rise. The Fed, which bumped up rates 0.25% in March, is expected to make additional rate hikes throughout the year to combat rising inflation. The yield on 10-year U.S. Treasuries rose 0.81% in the 1st quarter, from 1.51% at the end of 2021 to 2.32% at the March close.

Corporate earnings still climbing

Corporate earnings expectations continued to rise in the 1st quarter as the economy recovered. The 12-month advanced earnings per aggregate share projection for S&P 500 companies climbed 4.28% in the 1st quarter.

Forward P/E ratio declines

The forward price-earnings ratio (P/E) of the S&P 500 declined slightly in the 1st quarter, as earnings projections rose, and stock prices slipped. The forward P/E of the S&P 500 dropped from 20.96 at the close of 2021 to 19.79 at the end of the 1st quarter.

The forward 12-month earnings yield for the S&P 500, which is the inverse of the P/E, moved up from 4.77% at the end of 2021 to 5.14% at the close of the 1st quarter. The 12-month forward earnings yield can be helpful in comparing equity earnings yields with current bond yields. Although the yield is about 2% lower than it was two years ago, it is still significantly higher than the 2.32% market rate of 10-year U.S. Treasuries.

Dollar gains vs Euro and Yen

The dollar appreciated 2.16% versus the Euro in the 1st quarter. The rising dollar has been attributed, in part, to the relatively quick economic recovery that the U.S. has made from the pandemic. In addition, concerns over the impact of the Ukrainian war—and the Russian sanctions that have accompanied it—has also affected the strength of the Euro.

The dollar has also appreciated versus the Yen, up 5.40% in the 1st quarter.

Oil price surge abating

While rising global demand was already driving oil prices higher as the world recovered from Covid-19, the boycott of Russian oil in response to the Ukraine attack pushed prices even higher. West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, surged to more than $123 per barrel in early March before slipping back down to about $100 at the end of March.

The drop in prices was due, in part, to President Biden’s commitment to release one million barrels of oil a day from U.S. oil reserves—the largest release ever of the nation’s oil reserves.

Through the 1st quarter, oil prices rose 33.33%, from $75.21 per barrel at the end of 2021 to $100.28 at the close of the quarter, including a 4.76% increase in March.

Gasoline prices at the pump jumped 28.68% in the 1st quarter, from a national average of $3.38 per gallon at the end of 2021 to $4.34 at the March close.

Gold prices rise

With inflation rising and the war in Ukraine intensifying, gold prices moved up 6.18% in the 1st quarter, from $ $1,828.60 per ounce at the end of 2021 to $1,941.30 at the March close.

International equities level off

International equities made a very slight recovery in March, with the MSCI EAFE Index gaining 0.12% for the month. But for the quarter, with the Ukrainian crisis taking center stage, the index dropped 6.61% from 2,336.07 at the end 2021 to 2,181.63 at the March close. (The MSCI EAFE Index tracks developed-economy stocks in Europe, Asia, and Australia.)

What’s ahead for the economy and the markets? See: 2nd Quarter Market Outlook, by Steve Lowe, Chief Investment Strategist, Thrivent Asset Management

Media contact: Callie Briese, 612-844-7340;

All information and representations herein are as of 04/07/2022, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.  Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Past performance is not necessarily indicative of future results.

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