The year 2022 as a whole could easily be attributed to the Russia-Ukraine war, hot inflation and rising-rate worries after an upbeat 2021. No wonder, such worries caused an upheaval in the market in the first quarter of 2022.
Wall Street witnessed its worst performance in Q1 in two years. The Dow Jones and the S&P 500 lost 4.6% and 4.9%, respectively, while the Nasdaq Composite Index shed 9% in the first quarter (read: U.S. Stocks Log Worst Q1 in 2 Years: Top-Ranked ETFs Shine).
Against this backdrop, below we highlight a few ETF stories of the first quarter that could hog investors’ attention in the second quarter too.
Russia-Ukraine War
As the Russia-Ukraine conflict (notably, both countries are commodity-rich) has sent prices for energy, grains, and metals surging, U.S. inflation is hovering around a 40-year high. It appears that higher inflation is not fleeting.As investing in commodities are the best practices in an inflationary environment, theSPDR S&P Metals & Mining ETF XME and theSPDR S&P North American Natural Resources ETF NANR have gained about 5% each past month. Both funds are up 40% and 34% this year, respectively. The trend should stay strong in the second quarter as well.
Fed Rate Hike; Inversion of Yield Curve?
The Federal Reserve raised interest rates by a quarter of a percentage point and projected that its policy rate would be in the range of 1.75% and 2% by the year's end in a newly aggressive stance to fight the red-hot inflation.
Hence, new Federal Reserve projections indicate six more rate hikes this year, per CNBC. The Fed downgraded its forecast for 2022 median real GDP growth from 4% in December to 2.8% for 2022. However, it kept the growth rate expectations same at 2.2% for 2023 and 2% for 2024.
Uncertainties and global growth worries sparked a safe-haven rally and dragged down long-term bond yields while Fed rate hike worries raised the short-term yields. According to MUFG Securities, the yield curve inverted 422 days ahead of the 2001 recession, 571 days ahead of the 2007-to-2009 recession and 163 days before the 2020 recession, as quoted on a CNBC article.