There’s Still Green on the Screen, No April Fooling

Is Recession in Bloom This Spring?

The first quarter of 2022 is in the rearview mirror, and now the punditry and pseudo-analysis begins.

Last night’s headlines were abuzz: “Worst Quarter in Two Years,” they intoned. But this is hardly the dramatic moment in the markets it’s being made out to be. Looking at every three-month period since its 1957 inception, the S&P 500 has been positive only 66% of the time. Stocks have fallen roughly one-third of the time over these short, three-month stretches. Simply put, a calendar quarter is an arbitrary construct used to make things simple for those who think and operate in a January-to-December mindset.

Ultimately, when the sun set Thursday on the first quarter, the S&P 500 index and the Dow Jones Industrial Average were down less than 5% for the year. In fact, bonds fell more, off almost 6%. While relatively rare, this wasn’t the first three-month period when bonds dropped more than stocks—it’s happened seven other times over the last 30 years.

Looking ahead, we’re focused on prospects for economic growth (the job market is afire according to the latest data released this morning) and, of course, the impact of the Ukraine war and a resurgent COVID-19 variant.

Yield-Curve Inversion: Recession Signal or April Fool’s Trick?

The handwringing over a “yield-curve inversion” has begun. Be prepared to hear a whole lot more about inversions in the weeks, months and quarters ahead.

First, a definition. The “yield curve” refers to a line on a chart mapping the yields of Treasury bonds of various maturities. Most of the time, bonds with longer maturities yield more than bonds that will repay investors sooner, so the line curves upward, to the right. This makes sense: If a bank is going to lend you money for 10 years, it would probably ask for more in return than if it was lending you money for just three months or even two years. A yield-curve inversion occurs when that relationship flips and short-maturity bonds yield more than long-maturity bonds.

So why are pundits focused on inverted yield curves today? Historically, yield-curve inversions have forewarned of recession, with long lead times. Take a look at the chart.

Note: Chart shows yield spreads on a monthly basis along with periods of U.S. economic recession from January 1982 through March 2022. Source: The Federal Reserve Bank of St. Louis.

We’ve plotted the difference (or “spread”) in yield between 10-year Treasury and 2-year Treasury bonds as well as the difference between 10-year and 3-month Treasurys—two common measures of the yield curve’s steepness. The gray bars mark recessions. As you can see, the lines have dipped below zero (sometimes barely)—meaning the yield curve inverted—before each of the past five recessions.

On Tuesday, the yield on 2-year Treasury bonds was briefly higher than that on 10-year Treasury bonds. They “inverted.” But not for long. That inverse relationship would have to last a lot longer than a few trading hours for it to count as a true harbinger of an economic slowdown.

More important, and hardly reported on, is this: As the 10-year to 2-year spread approached zero, the 10-year to 3-month spread moved in the opposite direction—nowhere near inverting. In the 40-year period charted, this is the most dramatic move in opposing directions these two measures have ever made.

We think you’d have to see both lines fall below zero to declare the yield curve truly “inverted.” But keep in mind: Even if we do see an inversion occur, it is not an immediate precursor to recession, but rather an early signal. Recessions have followed a year or two after the inversion, and timing the start and end of an economic slowdown is difficult, if not impossible. When forming a view of the economy’s prospects, our focus goes beyond the yield curve—and, in our view, this factor is barely flashing yellow right now.

Bonds Aren’t Broken

With the bond market experiencing one of its worst quarters in decades, our resident bond guru, Senior Vice President and Fixed Income Manager Chris Keith, looked at the state of fixed-income markets this week on our website. Here’s an excerpt.

The bond market is feeling the impact of rising interest rates. You know the concept by now—when rates rise, prices fall. And rates are rising because both investors and the Federal Reserve have started to take inflation seriously after ignoring it for much of last year.

But bonds aren’t broken. They have the same familiar characteristics as they did when you acquired them—the main change is that they are now closer to maturity. Their credit profile hasn’t weakened, so they remain high quality and are still producing income. They most likely play the same role in your investment portfolio, too. Ultimately, bonds will do what we all expect them to do.

You can be certain that your bonds will “roll down the yield curve” (maturity curve) as a four-year bond becomes a three-year bond, and so on. As a bond gets closer and closer to its maturity date, expect to see its price approach par value ($100). This is an important dynamic for bond investors to understand: Rising rates cause the market value—not the face value—of bonds to fall. 

So don’t give up on your bonds—there’s nothing wrong with them.

For more thoughts from “The Bond Guy,” click here.

Tips for Tax-Loss Harvesting

Today’s reader question is about tax strategies for investors: What is the best way to think about tax-loss harvesting—what are your thoughts on timing and best practices?

Cathy Lee, Tax Associate, had this to say:

Tax-loss harvesting—selling a losing investment to reduce your tax obligations—can help minimize taxes by offsetting capital gains and up to $3,000 in ordinary income each year for individuals. Any unused losses (for example, if you didn’t realize any gains or reach the $3,000 limit in ordinary income) can be carried over and spread across several tax years.

But remember: Tax-loss harvesting is only effective when it’s applied properly and strategically.

The first guardrail to keep in mind is the wash-sale rule, designed to deter the sale of securities simply for tax avoidance. In sum, you can’t sell an investment for a loss and have purchased the same holding or one that is “substantially similar” within 30 days before or after the loss. For instance, if you sell your position in, say, Vanguard’s S&P 500 Index fund, you can’t obtain the tax benefit of the loss if you purchased Vanguard’s S&P 500 ETF in the 30 days before or after the sale.

Next, tax-loss harvesting doesn’t necessarily come into play at the end of the calendar year or during tax season. Instead, it’s most useful when conditions are right. For instance, you’re more likely to experience losses when volatility causes ongoing market swings. The other opportune time to think about tax-loss harvesting is when you are rebalancing your portfolio. If you are planning to trim a position to tune up your asset mix or change your risk exposure, it may also be a good time to look for a tax upside.

Oh, and tax-loss harvesting only applies to your taxable accounts, so it’s not relevant to your 401(k), IRA or other retirement accounts.

All of this adds up to one key takeaway: Tax-loss harvesting is something to consider in support of your long-term investment strategy. Reserve your trades for when they will benefit your overall portfolio and financial goals—saving on taxes is icing on the cake.

Financial Planning Friday
Spring Clean Your Finances

Spring cleaning makes your living space feel brighter heading into summer. But why stop there? These steps will get your finances streamlined and in tiptop shape.

  1. Scrub your budget. Shifts in spending patterns and priorities during pandemic lockdowns forced many of us to reevaluate our travel and entertainment needs. Your income may also have changed in the last two years, due to getting either a new job or a salary adjustment. With life returning to some sense of normalcy, it’s a great time to review your budget from top to bottom. To maximize saving and reach your financial goals faster, reassess both the income and expense parts of the equation.
  2. Straighten out beneficiaries. Did you know that the beneficiaries listed on your retirement plans, life insurance policies, annuities and other accounts supersede what’s specified in your will? It only takes 15 minutes every spring to make sure your beneficiaries are correct on your accounts—that’s time well spent. And while you’re at it, make sure your contingent beneficiaries are updated as well.
  3. Spruce up insurance coverage. If it’s been several years since you’ve looked at your insurance coverage, it may be time for a refresh. We’re talking about the basics: Life, disability, home and auto, and umbrella liability. Insurance needs change when milestones come along, whether it’s a new job, getting married, having children, buying a new home or completing a major renovation. All these things are catalysts for reviewing your insurance to make sure you’re sufficiently covered.
  4. Purge old subscriptions. Remember that $10 here and $20 there adds up fast, especially when charges renew automatically. Make a list of all your monthly or annual subscriptions and you may be surprised to find a few that you can consolidate or eliminate. Before you know it, you might have a couple hundred dollars in your monthly budget that you can sock away in an investment account or use to treat yourself to something special.
  5. Refresh tax withholdings. With tax season in high gear, it’s a perfect time to assess your withholding. While it feels nice to get a refund check from the IRS, this isn’t the most efficient way to use your money—and the government thanks you for your interest-free loan! If you suspect you may be withholding too much or too little, ask your tax preparer what they think. Or check out the IRS’ online tax withholding estimator. We recommend the $500 rule of thumb—if you owe or are refunded more than that, it’s time to tweak your withholding.

Once you’re through this list, your financial plan will be in sunnier shape. If you have any questions pertaining to your individual situation, let your portfolio team know. We want to help!

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Adviser Investments in the Media

Chairman Dan Wiener appeared in Ignites this week with his insight on Vanguard’s new private equity head.

Chief Investment Officer Jim Lowell remembered the late Fidelity legend Ned Johnson in Barron’s and comments on the state of the market at the end of the first quarter.

Elsewhere this week, Portfolio Manager Adam Johnson talks about some promising signs for travel stocks and was on Cheddar News discussing the stock market’s recent rebound.

In this week’s Market Takeaways, Senior Research Analyst Liz Laprade discussed the state of the bond market, while Portfolio Manager Steve Johnson offered his thoughts on where we stand heading into the second quarter.

Looking Ahead

Next week, we’ll get a look at the minutes from the Fed’s meeting last month, as well as key reads on factory orders, the manufacturing and service sectors, and consumer credit.

As always, please visit for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

Please note: This update was prepared on Friday, April 1, 2022, prior to the market’s close.

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