This blog will serve as follow up to our previously released Q1 Investment Themes and is intended to provide an update on what we are seeing as well as our current outlook. 

Here are the top three things we are covering in this week’s blog:

  1. Equities fell further in March with fear of war in Europe and an increasing likelihood of numerous interest rate hikes.
  2. Economic data across the board continues to suggest the Fed will be forced to raise rates during a slowdown.
  3. The ever changing market, economic, and global situation continues to support an All-Weather approach that seeks to achieve true diversification through a combination of anti-correlated assets.


The market downtrend continued in February with the escalation of tension between Russia/Ukraine and deteriorating economic data across the globe. Following a bounce to begin the month, the market fell sharply and broke through the previous lows. Peek selling came as news broke of the impending Russian invasion, causing markets around the world to drop steeply in anticipation of the disruptions ahead. Despite the unknowns with Russia, the violent reaction in equities led to capitulation as investors attempted to price in the actual effect of a European war on the US economy. After initial headlines caused a drop of -3%, US equities rallied to over close over 3% higher on the day after the invasion. The rally created enough momentum to bring the markets back to just above the January lows. For the month, the S&P closed down 3.14%. Similarly, the Nasdaq finished down 3.43% as Tech underperformed yet again. In contrast, the Russell 2000 outperformed and closed February +0.97%[1].

Driven by the volatility in US equities and the war in Europe, the World index fell by another 2.65%[2].

Despite showing signs of peaking in December, commodities moved higher on the back of a steep rally in oil. With the Federal Reserve making it clear that inflation has reached above initial estimates, commodities surged above multi year highs. After a strong 2021, commodities finished February up 5.5%.

Additionally, Commodity Trend Advisers had another positive month in February. Historically, this asset class has performed well during inflationary periods. With the plan for dealing with inflation largely undetermined, we could see further strength in commodities in the months ahead[3].

The combination of fears of runaway inflation and the imminent war in Europe fueled a steady rally in Gold. After consolidating for much of 2021, Gold has begun the new year strong and finished February +5.81%[4].

Yields rose further as speculation grew that there will be a significantly more Fed rate hikes during 2022 than previously anticipated. While concerns of war caused yields to finish off the highs, there was a brief moment the US 10-year yield notably reached above the 2% mark[5].

Since falling to close 2021 well off the highs, Oil has surged to begin 2022[6]. With increasingly intense sanctions on Russia, Oil prices jumped above $100 a barrel to the highest levels since 2011[7]. With so many unknowns surrounding the situation in Russia, many fear that the high prices could be here to stay[8].

The Russian and Ukrainian stock markets corrected as the invasion began. Facing deep economic sanctions and the removal of access to SWIFT[9], Russia experienced a sharp crash to finish the month down -52.75%. With the exchange now closed for trading, the pain may only get worse in the first few weeks of March. Despite being subject to a nationwide attack, Ukraine’s exchanged fared slightly better and closed -41.04%[10].


GDP came in slightly higher in the fourth quarter, but weak economic data in February has driven future expectations down significantly. In just a one-month period, our third-party research group Hedgeye has dropped their GDP expectations by over 0.55% for every quarter of 2022[11]. Coming off a historically positive year of economic data in 2021, we are now facing substantial headwinds amidst a costly war and deteriorating global economy[12].

In contrast, the rise in inflationary assets has caused CPI estimates to increase by an average of 0.41% for every quarter of 2022.

With the combination of worsening GDP and trending inflation, the outlook for the economy remains bleak.

One of the largest sources of investor fear over the past two months has been the increasing urgency for Fed rate hikes. After months of claiming the inflation was transitory, the Fed has now changed their narrative and accepts that the inflation has reached above prior estimates[13]. As a result, various Fed board members have come out and made the argument that rate hikes will need to be front loaded in order to curb the rising inflation[14]. Since the end of 2021, the markets expected number of rate hikes has spike from 3 to nearly 6.5. In addition, the expectations of a .25% rate hike in March increased to .50% in mid-February as the 10-year yield rose above the 2% mark. With markets falling deeper into a correction, Fed Chair Jerome Powell provided minor relief by stating that the effects of the war in Ukraine are still highly uncertain for the US economy[15]. With investors hoping that this may be a sign of slowed hikes, the expectations of a larger hike in March faded and a more modest estimate returned[16].

Amongst all the negative sentiment, the disposable income reading showed the hardships many everyday Americans are facing. Coming off the surplus of stimulus in 2020 and 2021, the personal savings as a percentage of disposable income has dropped steeply over the past six months. With many consumers relying on unemployment checks and stimulus, the benefit expiration that occurred in 2021 forced millions of people to find income elsewhere. This, in addition to high inflation, has resulted in a growing percentage of Americans saving much less[17].

30-year mortgage rates built upon the increase in January and ended February just below 4%. With rates already up over 1% from the end of the prior year, many are fearing that a slowdown in the housing market could begin. While data shows that the median number of days for homes on the market decreased again in December, the rise in rates through February could cause this number to reverse[18].


  1. The market continued its downtrend in February on concerns of Fed rate hikes and the outbreak of the Russia – Ukraine conflict.
  2. Concerns persist with many of the Year Over Year economic data readings beginning to slow, inflation continuing to accelerate, and the further crash in consumer sentiment.
  3. A challenging start to 2022 in the market highlights why incorporating a good defense in your portfolio to go with a good offense is important.

We hope you have enjoyed getting a deeper look into our investment research and look forward to providing this to you each quarter going forward. Thank you from the entire Konvergent Team!

[1] Slide 3: Major Indexes Enter Correction
[2] Slide 4: World Stock Market Index Falls
[3] Slide 5: Commodities Spike as Inflation Grinds Higher
[4] Slide 6: Gold Jumps on War Fears
[5] Slide 7: Yields Move Higher
[6] Slide 8: Oil Spikes on Russia Headlines
[7] Oil jumps to highest since 2011 as OPEC holds output steady despite Russia’s war on Ukraine (
[8] Oil Spikes on Russia Headlines
[9] Analysis: SWIFT block deals crippling blow to Russia; leaves room to tighten | Reuters
[10] Slide 9: Ukraine and Russia Crash
[11] January Market & Economic Update – Market Falls to Worst Month Since March 2020 – konvergent wealth partners
[12] Slide 11: GDP & Inflation
[13] Fed says labor, wages could drive persistent inflation | Reuter
[14] Fed Rate Hikes Needed to Be Front Loaded As Inflation Soars: Bullard (
[15] Slide 12: Rate Hikes
[16] Fed Chair Powell notes ‘highly uncertain’ Ukraine impact, but says rate hikes are still coming (
[17] Slide 13: Disposable Income
[18] Slide 14: US Housing Market