2022 Investment Outlook: Navigating unprecedented market dynamics
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ERIC FREEDMAN: Since the launch of the MSCI Emerging Markets Index in 1988, never have six major market indices all posted simultaneously negative quarterly returns until now. As investors, it's important to consider the odds of this pattern continuing in order to manage risk and reward in today's unique environment. Hi. I'm Eric Freedman, chief investment officer for U.S. Bank Wealth and Institutional Asset Management. 
In the first quarter of 2022, investment grade taxable and municipal bonds, US stocks, international emerging and developed stocks, and Real Estate Investment Trusts, or REITs, all posted losses, ranging from a minus 3.7% loss for REITs to a minus 6.9% loss for emerging market stocks. A confluence of unique events pressured global stocks and bonds. First was the US Federal Reserve's pivot to fight persistent inflation by ending its asset purchase program and raising interest rates. 
By the end of the quarter, market prices reflected as many as nine interest rate hikes in 2022. This negatively impacted bond prices and also hit investor sentiment for equities, as prices relative to expected earnings fell. Higher prices stemming from the Russia-Ukraine conflict increased investor fears of diminished profit margins, leading to more investor pessimism. 
While history provides us some guide to what the future may hold, we must consider the differences in this market and economic environment and how best to position portfolios. The Fed is on a path to raise interest rates to battle inflation. Inflation pressures appear likely to remain above average for much of this year due to supply constraints on labor, energy, raw materials, and semiconductors. And higher prices may present a challenge to business profit margins, as companies must raise prices to compensate for higher wages and increased costs of raw materials. 
To counter higher interest rates and above average inflation, we prefer strategies with rising cash flows and rising income streams. Global infrastructure and bank loans are two investment strategies that meet these criteria. Global infrastructure comprises sectors such as utilities, transportation, energy storage, cell towers, and data centers. Bank loans include loans to companies where the income paid adjusts based on changes in short-term lending rates. 
Coincidences of poor performance is unusual across major fixed income, equity, and real asset classes. For now, the economic backdrop is one of slower yet still positive growth, coupled with above average inflation. Understanding current market dynamics can help match your portfolio with your unique goals. To learn more, speak with your wealth management professional, or visit Market News on usbank.com.