Economic Flash: Modest Gains Amidst Market Volatility

This article is brought to you in collaboration with our colleagues at Laird Norton Wealth Management from their post, Economic Flash: Growth with Inflation Vs. No Growth.

U.S. Economy: Supply Chain Repair

Supply chains are showing early signs of repair with a drop in port congestion and reduced shipping transit delays. Still, China’s rolling COVID-19 lockdowns and restrictions and Russia’s ongoing invasion of Ukraine dampen the possibility of a quicker recovery. The related high inflation helped drive U.S. consumer confidence to a 3-month low. Investors looked past disappointing earnings from major retailers to relatively good inflation news: the PCE Price Index, which measures core inflation minus food and energy, fell to 4.9% annualized in May (down from 5.2% in April) while consumer spending rose.

Foreign Stocks: China Slows

Non-U.S. equities performed marginally better than U.S. equities. While most major global economies are tightening monetary policy, China is loosening to counteract slowing growth (4% expected for 2022) and a sinking stock market (36% drop in the past year). A combination of monetary stimulus and less restrictive COVID-19 policies could lead the world’s second-largest economy to surprise on the upside.

Fixed Income: Rates Fall

The yield on 10-year U.S. fell in May after peaking above 3% on investor concerns that the Fed’s fight against inflation could lead to recession. As interest rates generally fell, bond prices strengthened, displaying for the first time in 2022 the defensive benefits of fixed income. Muni bonds outperformed given their perceived significant discount to U.S. Treasuries.

Real Assets: Commodities Run

Real assets continued their strong run, with the energy sector up 10.4% and driving commodities prices higher. Infrastructure equities have also delivered incrementally positive returns, while the more cyclically sensitive REIT category has struggled, given investor concerns about recession and rising corporate bond yields.

Alternatives: Hedging Additive

Hedge fund exposures have generally added value to portfolios in 2022. Unsurprisingly, long-biased equity managers had more success in May, with the equity market recovering somewhat. Waning investor enthusiasm and tumult in the stablecoin market, cryptocurrencies whose values are backed by assets (typically traditional currencies like the U.S. dollar or commodities like gold), were factors in a difficult month for cryptocurrency and blockchain strategies.

Equities Total Returns

Fixed Income Total Returns

Economic Indicators

Our Take

A month that ended with meager net positive returns possibly feels more like relief to investors than a signal that financial markets are likely to turn things around. While some economic data indicates the continuation of the post-COVID recovery, marked by low unemployment, rising wages and excess cash, a fair amount of data on the other side of the ledger limits that enthusiasm.

It remains to be seen whether the contraction in Q1 U.S. GDP reverses in the coming quarters. If growth resumes, a robust pace would be surprising. Inflation is arguably easing but not at a rate that is likely to be cheered by consumers, with indications that disruptions to the supply chain will last at least into 2023. That said, U.S. consumers have been surprisingly resilient in the face of rising costs with spending accelerating. But that has primarily been fueled by swiftly rising credit card debt, a resource that cannot be tapped in perpetuity. Future spending may be impaired as the higher cost of necessities — food, energy, shelter — crowds out discretionary purchases.

Looking Ahead

Given this backdrop, and consistent with the market regime thesis we presented in January, market volatility is likely to continue at above average levels as we move into the second half of 2022. In terms of what we are watching most closely, tightening liquidity and credit conditions are often the precursor to more difficult environments. Currently, the yield differential between lower-quality U.S. corporate bonds and U.S. Treasuries has widened to levels we haven’t seen since spring 2020, and the Fed has announced it will drain liquidity by reducing its balance sheet at a pace of $47.5 billion per month. Just as important, we will be monitoring whether the Fed’s cumulative actions appear to be pulling down inflation and for stabilization in interest rates.

While most investors tend to dwell on the negative in difficult market environments, these times are often when we are capable of making our best and most impactful investments on a strategic basis. For example, valuations are attractive in many asset classes, including international equities and municipal bonds. Additionally, the banking of tax losses and rebalancing portfolios to targets will allow us to position for success in the long run.  As your advisor, our priority is to keep sight of your long term goals and the role each part of your portfolio plays in achieving them, implementing strategies to take advantage of opportunities and protect against risks as they present themselves.

Glossary of Indices


U.S. Large Capitalization = S&P 500 Index
Tracks the performance of a representative sample of 500 leading companies in the major industries of the U.S. economy.

U.S. Small Capitalization = Russell 2000 Index
Tracks performance of the 2,000 smallest companies in the Russell 3000 Index, representative of the U.S. small capitalization equity market.

U.S. Growth Equities = Russell 3000 Growth Index
Tracks the performance of those Russell 3000 companies that have higher price-to-book ratios and higher forecasted growth values.

U.S. Value Equities = Russell 3000 Value Index
Tracks performance of those Russell 3000 companies that have lower price-to-book ratios and lower forecasted growth values.


International Equities (Developed Countries) = MSCI EAFE Index
A float-adjusted market capitalization index designed to measure developed market equity performance, excluding the US and Canada. Consists of the stock market indices of these 20 developed countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

Emerging Market Equities = MSCI Emerging Markets Index
A float-adjusted market capitalization index designed to measure equity performance in the major emerging markets. Consists of the following 25 emerging-market -country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.


U.S. Aggregate Bond = Barclays Capital U.S. Aggregate Bond Index
Covers U.S. dollar-denominated, investment-grade, fixed-rate, taxable bond market consisting of SEC-registered securities. Includes U.S. Treasuries, U.S. agency bonds, U.S. corporates, mortgage-based securities (MBS, CMBS) and asset-backed securities (ABS).

TIPS (Treasury Inflation-Protected Securities) = Barclays U.S. Treasury Tips Index
Measures the performance of TIPS of various maturities issued by U.S. Treasury.


International Developed Bonds = BofA Merrill Lynch Global Government Bond II ex U.S.
Measures the performance of non-U.S. developed-market government bonds on an unhedged currency basis.

Emerging Market Bonds = BofA Merrill Lynch Emerging Markets Sovereign
Bond Index Measures the performance of emerging markets government bonds on an unhedged currency basis.


Intermediate Municipal Bonds = Merrill Lynch Municipals, 3-7 Yrs Index
A subset of The Merrill Lynch U.S. Municipal Securities Index, including all securities with a remaining term to final maturity of between 3 and 7 years.

Municipals, Broad Market = Merrill Lynch Municipal Master Index
Tracks the performance of U.S. dollar denominated investment-grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions.


Absolute Return Funds = HFRX Absolute Return Index
Tracks the performance of hedge funds aiming to provide stable performance regardless of market conditions. Such funds tend to be less volatile and less correlated to market benchmarks. Data is based on estimates for the most recent months, may not include performance for the last business day of the indicated month and is subject to revision.

Market Directional Funds = HFRX Market Directional Index
Tracks the performance of hedge funds that add value by participating in the direction of various financial markets. Such funds characteristically have higher expected volatility than Absolute Return strategies (see above). Performance data is based on estimates for the most recent months, may not include performance for the last business day of the indicated month, and is subject to revision.


Equity Volatility = CBOE VIX Index
Aims to measure investor expectations for near-term stock-market volatility as conveyed by the pricing of stock options on the S&P 500 index that mature within 30 days.

Implied Inflation = 10-Yr TIPS Implied Inflation
Gauges investor expectations for future U.S. inflation based on the difference between the yield on a 10-year TIPS (Treasury Inflation Protected Security) and the yield on a nominal 10-year Treasury.

Gold Spot $/oz.
An index intended to measure the current price of gold, based on futures contracts deliverable in the following month priced in U.S. dollars per Troy ounce.

Oil = Brent Crude Oil Spot Price $/bbl
Brent Crude Oil refers to a particular grade of crude oil often quoted in financial reports as the global benchmark for the price of oil. It typically trades at a premium to the West Texas Intermediate price.

U.S. Dollar = Trade-Weighted U.S. Dollar Index
Value of the U.S. dollar relative to a composite of 26 currencies of major U.S. trade partners, weighted based on trade data.


All content presented on the Wetherby Asset Management LLC (“Wetherby”) website is for informational purposes only and is from sources believed to be reliable. No warranty is either expressed or implied by its presentation.

This content is not, and should not be, considered a recommendation, offer, nor solicitation of an offer by Wetherby or its affiliates to buy, sell or hold any security or other financial product; nor is it an endorsement or affirmation of any specific investment strategy. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Information contained in third-party articles was prepared by independent outside parties, and the accuracy of any such information may have changed since the article was published. Unless otherwise specified, opinions expressed reflect those of the author and not of Wetherby. Wetherby does not guarantee the accuracy or completeness of information in these articles and assumes no liability for damages resulting from or arising out of the use of such information. Should any specific funds or securities be mentioned in a third-party article, it may not be reflective of any funds or securities recommended by Wetherby, nor should it be considered an investment recommendation or investment advice. These investment strategies may or may not be appropriate to incorporate in our client portfolios. Wetherby’s analysis is subject to change as information develops regarding specific investment goals, profiles and/or the economic markets. Individual investments typically constitute a minority allocation within a client’s fully diversified portfolio managed by Wetherby.

Wetherby manages portfolios according to each client’s specific investment needs in accordance with a signed investment agreement. Therefore, each client’s portfolio has a unique set of circumstances and, consequently, investment results. Wetherby’s outlook may change if the client provides new information or if there are material changes in the market or investment recommendations. While Wetherby intends to add value to our clients in non-investment related areas of tax and financial planning, we do not hold ourselves out to be practicing income tax professionals or estate planning attorneys. You should consult your tax advisor and/or estate planning attorney for any legal or accounting needs.

To the extent that our website contains information about specific companies, securities and/or investment strategies – including whether they are profitable or not – it is provided only as a means of illustrating a potential investment thesis. It is not intended as a reflection of any securities or funds held by clients nor the experience of any client; the holdings and performance of which may be materially different from any investments discussed. It should not be assumed that any information contained serves as a substitute for, personalized investment advice from Wetherby or an investment agreement.

If a reader has questions regarding the applicability of this information to her/his situation, she/he is encouraged to consult with the professional advisor of her/his choosing. A copy of Wetherby’s current ADV Part 2 & 3 discussing our advisory services, fees and other relevant information is available upon request.



Wetherby’s status as both a Certified B Corporation® and a Certified San Francisco Green Business is indicative of our commitment to enhanced social, environmental and governance standards. It is not intended to represent Wetherby’s investment capabilities or performance. For additional details regarding Certified B Corporations® please visit; for San Francisco Green Business please visit

Social Media

Social media content involving Wetherby and our affiliated people is intended solely for informational purposes. It should not be considered as a recommendation, investment advice, nor an offer or solicitation of services. Links to third-party content are provided for convenience only; Wetherby cannot assure the accuracy or completeness of the information and no warranty is either expressed or implied by its presentation. Neither Wetherby nor our affiliated people are responsible for any third-party content, services, products or information. Please note that as a registered investment advisory firm with the U.S. Securities and Exchange Commission, Wetherby and our affiliated people are restricted from using any form of testimonial relating to our investment advisory services. We appreciate your acknowledgments; however, our policy requires that we hide any recommendations or endorsements.

Cookie Policy

We use cookies and similar technologies on the Wetherby Asset Management LLC website. Cookies are bits of data that a website sends to a web browser on a visitor’s computer. Cookies help us and our third-party partners to collect information about you and other visitors to our website, including date and time of visit, pages viewed, amount of time spent on our sites, or general information about the device used to access the site.

In addition to cookies, certain additional data may be automatically collected from your device or web browser, including:

IP addresses, referrer headers, data identifying your web browser and version, social media pixels, web beacons, and tags.

Third parties may also collect information via our website through cookies, third-party plug-ins, and widgets. These third parties collect data directly from your web browser and may connect it to personally identifiable information. The processing of this data is subject to the privacy policies of these third-party vendors.

We use cookies and pixel tags to track the usage of our website to provide services to existing and prospective clients and improve their online experience. We also use cookies and pixel tags to obtain aggregate data about site traffic and site interaction, to identify trends, and to obtain statistics so that we can improve our site.

Back to top