Global investment markets volatile in the 3rd quarter of 2022, as both stocks and bonds continued lower for the third straight quarter. The equity markets rebounded sharply in the first month of the quarter with the S&P 500 up over 9% in July, but this rally faded quickly with the S&P 500 down over 4% in August and down over 9% in September. While it has been a difficult year so far for overall for investment markets with most down year to date, a source of stability has come from stable value funds that have held their value in 2022. This is highlighted in the NERT Model allocation through the Met Life Stable Value Fund, which is up 0.63% through the first nine months of the year.
The theme of the third quarter was again inflation and what actions central banks around the world are taking as they attempt to slow inflation down. As we mentioned in last quarter’s commentary, in the United States the Federal Reserve raised the federal funds rate by 1.50% through June, since then they have raised this rate by an additional 1.50% (0.75% in July, 0.75% in September). Currently the market is expecting another 0.75% move higher in the November meeting and another move higher in the December meeting. These expectations continue to put pressure on stock, bond and other financial markets as the cost of capital for companies and families becomes more expensive. For example, the housing market in the US is beginning to cool as 30-year mortgages approach a 7% average rate. Moving forward, there are positives for investors. This includes bonds across the globe now providing higher yields than we have seen for many years. For example, the 12-month treasury bill yield is over 4.4%. This compares to a rate of 0.12% at this time last year.
. 3rd QTR 1YR 3YRS 5YRS
Stable Income -4.35% -11.70% -0.11% 1.40%
Conservative Income -5.10% -13.80% 0.59% 2.22%
Traditional Pension -6.17% -18.53% 1.98% 3.70%
Equity Oriented -6.67% -19.46% 4.20% 5.37%
NERT Model Allocation – Choices for every investor
The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.
Given the current limitations on withdrawals from the Principal U.S. Property Fund, we created model allocations that removed the Principal U.S. Property Fund.
Andrew Casteel, CIO, CFP
Acorn Financial Advisory Services, Inc.