INSIGHTS

• March 2022 was the fifth weakest quarter of the last decade
• The New Zealand sharemarket was mixed during the quarter
• Our Reserve Bank will get another rate hike under its belt soon
• The US reporting season will also be in focus later this month
• Geopolitics, margin pressures, rising inflation and higher interest rates all loom as headwinds for the balance of the year

The March quarter wrapped up recently, and it was a bit of a rollercoaster for share investors. Rampant inflation, surging oil prices, rising interest rates and the war in Ukraine all conspired to make for a very volatile three months.

World shares fell 5.7 per cent, which is the worst quarterly performance since early 2020 when the pandemic first hit.

March 2022 was the fifth weakest quarter of the last decade, although a strong rebound during the last few weeks has flattered these figures.

At one point in world shares had fallen more than 13 per cent from where they started the year, and the Nasdaq index in the US was almost 22 per cent off its highs.

The top performing sharemarkets were those in the UK and Australia, both of which bucked the negative trend and posted small gains. This is largely because of the types of companies that dominate these markets.

In the UK, the materials and energy sectors make up 23 percent of the FTSE 100 index, while banks and financials are 18 per cent.

In Australia, materials and energy stocks represent 29 per cent of the ASX 200, while banks and financials are another 28 per cent.

Banks often perform well when interest rates are rising, while energy and materials companies (which include the miners) have been benefitting from very high commodity prices.

In contrast, the US sharemarket is dominated by technology companies, which have lagged in recent months. Higher growth businesses are often priced more aggressively, which means they are impacted more negatively by rising interest rates.

The New Zealand sharemarket was mixed during the quarter, with many of our defensive stocks performing solidly but some index heavyweights (like Fisher & Paykel Healthcare and Ryman Healthcare) dragging the overall market down.

Looking ahead to the current quarter, it feels like things could go either way.

If the conflict in Ukraine subsides - and we’re all hoping it does - that should boost confidence and add a bit of stability to the market.

April tends to be kind to share investors, and since 1950 it’s been the strongest month of the year for the S&P 500 index in the US.

However, we then find ourselves in that traditionally difficult middle of the year, which is where the “sell in May and go away” saying comes from.

Interest rates are likely to remain in the headlines over the coming quarter, with central banks across the globe set to keep cranking them up as they play catch-up to high inflation.

Our Reserve Bank will get another rate hike under its belt next week, and the only question is whether it’s the usual 0.25 per cent increase or whether it opts for a larger 0.50 per cent move.

I would go for the latter if it was up to me. It’s much easier to raise interest rates when the economy and labour market are strong, so I’d be making hay while the sun shines.

The US reporting season will also be in focus later this month. With many of the large US and multinational companies set to announce earnings for the March quarter, we should get a good steer on the health of corporate America, and the world.

These should reflect a US economy that remains in very good shape. At 3.6 per cent, the unemployment rate is almost back to its pre-pandemic level of 3.5 per cent, which was the lowest since 1969.

Analyst forecasts still point to earnings growth of 9-10 per cent for the 2022 calendar year, both globally and in the US.

These estimates have barely changed since the beginning of the year, although one could argue they might be looking a touch optimistic.

Geopolitics, margin pressures, rising inflation and higher interest rates all loom as headwinds for the balance of the year, and this could see management teams adopt a more cautious tone in outlook commentaries.

This article was also published in the New Zealand Herald under the title 'Mark Lister: Goodbye March quarter, hello April'