Though the first two months of the year were generally positive for financial markets, the February 28 onset of hostilities in Iran, with the resulting disruptions in the world’s oil supply, created significant headwinds for both equities and fixed income. Drastic increases in fuel costs are likely to drive inflation higher, at least in the near term.
The broad measure of domestic equities as reflected by the Russell 3000 index fell 4% during the quarter; the S&P 500 dropped 4.6%. A rare bright spot was provided by small-capitalization US companies, which managed a 0.6% increase during the period. International diversification aided many portfolios, as developed foreign equities saw only about a 1% decline. US bond prices, as measured by the Bloomberg US Aggregate, drifted lower, turning in an essentially flat -0.05% return during the quarter. Yields on the 10-year US Treasury bond inched upward to end the quarter at 4.31%, and crude oil prices spiked, closing the period at nearly $118/barrel for North Sea Brent.
Going into the period, the US economy was in a relatively strong condition, with unemployment, though moving off 2022 lows, still at a relatively contained 4.3%. However, continuing uncertainties around the duration of the conflict in the Persian Gulf and how long its effects will linger present challenges, not least of which is the extent of longer-term damage to the world’s energy infrastructure and supply chains.
Notwithstanding, investors are generally well-advised to avoid making drastic changes to portfolio allocations in response to admittedly unsettling current events. History and research continue to persuade us that attempts to actively “guide” a portfolio through rapidly changing circumstances is unlikely to add value over the longer term. Rather, our advice continues to favor broad diversification that features asset allocations suited to the investor’s goals.
As always, your Rothschild advisor stands ready to respond to questions about evolving market conditions or any other important financial matter. Please let us know how we can be of assistance.
