Market Update: Oh The Times, They Are A Changin’

By Morgan Christen


Bob Dylan sang, “come senators, congressmen… please heed the call… the line it is drawn… the curse it is cast… for the times they are a-changin’.

Putin will go down as the catalyst for generational change in European affairs and international finance… times will be a changing.


Companies are taking major losses to get out of Russia, and it will take years for them to return. Witold Henisz, professor of management at The Wharton School, University of Pennsylvania said, “the world has changed, and the C-suite really started taking seriously the parts of the world we don’t want to go to.

In 48 hours, companies were pulling out and rethinking the post-war world. This is a fundamental break. It isn’t a proxy war or limited incursion. This is something that has not happened since 1940.” Russia’s role in the world has changed. Globalization will change along with the reorienting of supply chains.


The US equity market posted negative returns for the quarter and underperformed non-US developed markets, but outperformed emerging markets. With interest rates moving forward during the quarter, growth stocks felt the pinch as they under performed value in all markets.

Small companies under performed their larger peers. Over the 5- and 10-year period, growth (in the US) has a substantial lead against value. Could reversal be in the cards? We will see.


Interest rates increased across all maturities in the US Treasury market for the quarter.

The yield on the 5-Year US Treasury Note increased 116 basis points (bps) to 2.42%. The yield on the 10-Year US Treasury Note increased 80 bps to 2.32%. The yield on the 30-Year US Treasury Bond increased 54 bps to 2.44%.

On the short end of the yield curve, the 1-Month US Treasury Bill yield increased 11 bps to 0.17%, while the 1-Year US Treasury Bill yield increased 124 bps to 1.63%. The yield on the 2-Year US Treasury Note increased 155 bps to 2.28%.

In terms of total returns, short-term corporate bonds returned -3.73% and intermediate-term corporate bonds returned -5.25%.


The yield curve has been flirting with inversion (see 10-Year Treasury Constant minus 2-Year). Inversion being when the 2-year yield is higher than the 10-year yield. The U.S. curve has inverted before each recession since 1955 with a recession following within six to 24 months, according to the Federal Reserve Bank of San Francisco.

It had one false signal in that time.

Beyond the inversion, the typical causes of a recession come from job losses, a loss of confidence in the economy by consumers, high interest rates, a stock market (or housing) crash, decline in manufacturing orders (durable goods), credit crunches and deflation.

Breaking those down. There is no lack of jobs, in fact there are more jobs than job seekers. Jobless claims fell to a 53-year low. Good news for workers, bad news for inflation.

Consumer Confidence – Off a bit from the beginning of the year, but up for the month of March. But we should not be surprised with a lower reading as the cost of living has jumped along with the horrible geopolitical events taking a toll on confidence. Consumer spending did suffer a pull back, but spending is still robust and has kept the economy growing.

Interest rates – Interest rate have moved up, but they certainly are not “high,” especially by historic standards. Nonetheless, higher rates have made an impact on the mortgage market.

Durable goods – Durable goods are goods that do not quickly wear out, think washing machines or cars.

Durable goods were off in the month of February, but it may be too soon to see if this is a trend, as it comes off a strong three month run.

The largesse of the government sending people and companies money didn’t impact output, but it did inflate demand for durable goods.

The demand was “pulled forward” during the pandemic. Again, not a surprise that durable goods numbers have dropped, as many goods have already been purchased.

The final components of a recession are not flashing warning signs. Housing is holding up as inventory is historically low. The market had a poor start to the year, but not a crash. Credit is out there for those who need it and we are certainly not in a deflationary period.

While there are concerning metrics in the US economy, we do not anticipate a recession in the U.S., at least this year.

2023 may be a different story. With Ukraine being the breadbasket of Europe, we will see shortages in wheat and sunflower oil. That, along with surging prices in fertilizer and petroleum could put a lid on international markets.

We would not be surprised if a recession hit the Eurozone. Food shortages may not only trigger hunger but could also spark unrest. A close eye will be kept on areas where the cost of food is a major portion of income, areas such as the Middle East and Africa.

The invasion of Ukraine is changing the view of globalization. Many countries will look to do it on their own.

On the positive side, transportation stocks have moved higher. That is a good view into an economy as those stocks tend to move up as demand for planes, trains and automobiles accelerates. That is discretionary spending, not something you see in a recession.

In Closing

The unfortunate war is still raging, and we anticipate continued supply chain issues especially in the commodity markets. Investors seem to believe the Fed can engineer a soft landing and hopefully they can. The economy could slow down, but corporate earnings are still strong.

Inflation will continue to hamper consumer spending as consumers worry about the economy. When will mortgage rate increases stop? Unsure, but they will impact the housing market. The trade across the world we enjoyed post-Cold War allowed the US to have low-cost goods, stoked the economy and provided stability. Will that end? The times (may) be a changin’.

The economy remains strong, overall consumers are not overleveraged and are in relatively good shape. Banks have underwritten some of their best loans ever and are also not over leveraged. Even though rates are on the rise, they are still far below historic norms. It would appear that markets will be bumpy, and inflation could stay at some level, but the prospects of leaving one’s money in the bank looks to be a losing proposition.

As a reminder, 13 years ago things looked grim. Lehman Brothers and Bear Stearns were bankrupted and mortgage delinquencies peaked at 11%. We had people out of work and the market was down. From that time in 2009 the S&P 500 went on to return approximately 17% per annum, almost 700% in total. Many people missed out. Times then were bleak, especially as we compare our economy today.

Our current view of the world is baked into our models, a tilt toward larger US companies and keeping our bond maturities shorter. To quote Bob Dylan again “may you have a strong foundation, when the winds of changes shift, may you stay forever young.” We work with you to build that foundation and we appreciate you trusting us with your hard-earned assets. We look forward to speaking with you soon.

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The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.

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