Another Rough Month for Markets Amidst a Volatile Year

October 7, 2022

After a sharp rebound through the late summer months, stocks swiftly retreated in September after the Federal Reserve echoed their hawkish stance with a third consecutive triple rate hike of .75%.

Markets continued to tumble lower throughout September over fears that inflation is becoming broader based in the US economy. The August Consumer Price Index (CPI) print remained at elevated levels, falling weekly jobless claims confirmed a tremendously tight labor market, and a laser focused Fed to quell inflation were all contributors to the market's violent move lower. Despite some leading economic indicators weakening, investors have abandoned expectation in the short term for a Fed pivot to more moderate policies and this reversal-of-sentiment has placed downward pressure on risk assets.

In September, The S&P 500 Total Return Index sank 9.21% contributing to its year-to-date slide of 23.87%. Bonds also fell during the month as yields rose. The Bloomberg US Aggregate Total Return Bond Index dropped 4.32% for the month also extending the Index losses of 14.61% for the year.

2022 continues to be a historical year, not only in terms of Fed policy, interest rate moves, and geopolitical tensions, but also in terms of market volatility and price action. In our June update we noted one the worst starts to the 60/40 Stock and bond portfolio on record. And now that we have put another quarter in the rearview, we thought it might be helpful to illustrate a few charts to put these volatile times in perspective.

A combination of stocks and bonds in a portfolio continue to dominate traditional wealth management and retirement accounts. And for great reasons: both asset classes historically provide positive net returns over longer time periods and provide the benefit of diversification to the portfolio, by way of low correlations.  As you can see from the graph below in only two of the past twenty years have stocks and bonds finished with positive correlations, 2005 and 2006. And for the first time since 2006, the 2022 calendar year correlations between the S&P 500 Index and Bloomberg US Aggregate Bond Index have crossed positive territory. However, a key difference from 2006 is that both stock and bonds posted positive returns in that year, so the diminished diversification wasn’t nearly as painful as todays return outlook.


2022*is using calendar year data from January 1st through September30th.
(Data Source: Bloomberg Terminal, S&P 500 Index, Bloomberg US Aggregate Bond Index; Chart Source: Stadion)


Another interesting theme is the fact that 2022 has revolved around realized volatility. Although the markets are typically measured by the CBOE Volatility Index (VIX) level as a proxy for volatility, the VIX measure is an indicator of expected volatility not necessarily realized volatility. To better illustrate realized volatility we compiled the previous 20 years of daily returns and looked at their percentage of 1-day returns which closed by more than 1%, up or down. As you can see from these results, in an average year, the S&P 500 Index rises or drops by 1% or more in 29% of days as denoted by the orange line.  However, so far in 2022, the number of days closing higher or lower than 1% is right around the 50% mark, a feat that has not been reached since the Global Financial Crisis of 2008.


2022*is using calendar year data from January 1st through September 30th
(Data Source: Bloomberg Terminal, S&P 500 Index; Chart Source: Stadion)


In closing, although market volatility can be unsettling, it is not historically unusual.  And such conditions call for discipline in the face of complex and unstable markets. Fortunately, if you continue to maintain an investment outlook that matches your time horizon, risk tolerance, and other important considerations, then the market volatility of 2022 will likely be a small bump in the road on your longer-term investment journey.

Thank you for your trust in Stadion.

Brian Rosso, CFA
Portfolio Management Analyst

The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.

The Bloomberg U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.

The CBOE Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.

The financial crisis of 2008, or Global Financial Crisis, was a severe worldwide economic crisis that occurred in the early 21st century.

There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical measurements are one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity.

The Reports’ commentary, analysis, opinions, advice, and recommendations represent those of Stadion Money Management and are subject to change at any time without notice. The opinions referenced are as of the date of publication and are subject to change to due changes in the market or economic conditions and may not necessarily come to pass Stadion reserves the right to modify its current investment strategies based on changing market dynamics or client needs. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Stadion’s assumptions, expectations, objectives, and/or goals will be achieved. There is no guarantee of the future performance of any Stadion portfolio. This material is for information use only and should not be considered financial advice. The data presented has been gathered from sources believed to be reliable; however, their accuracy, completeness, or reliability cannot be guaranteed. We make no warranties and bear no liability for your use of this information.

Diversification does not eliminate the risk of experiencing investment losses.

Stadion Money Management, LLC ("Stadion") is a registered investment adviser under the Investment Advisers Act of 1940.  Registration does not imply a certain level of skill or training. More information about Stadion, including fees, can be found in Stadion's ADV Part 2, which is available upon request.


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