The Lion, The Lamb, and The Lessons of March Madness

There is an old saying about March coming “in like a lion, out like a lamb,” as it is traditionally the month we transition from winter’s chilly roar to the gentle green shoots of spring. March is also known for “March Madness,” the annual NCAA men’s basketball tournament, and the betting on the outcomes of each game.

To complete and submit a winning bracket, many seek advice from seasoned TV professionals who prognosticate potential winners. Some pay for quantitative models. A daring few (those with too much time on their hands) immerse themselves in conducting in‐depth analysis by studying past games.

However, the odds of successfully picking a bracket are estimated to be roughly 1 in 120 billion, according to the NCAA website, and there is little indication that relying on talking heads, statistical models, or hours of study lends any particular advantage. Many games will play out as expected, but there are always surprises as underdog teams beat longshot odds, or luck plays a crucial role in how the ball bounces in big moments.

In many ways, March Madness is like investing. There is no shortage of professionals opening on the direction of stocks and bonds. Market participants leverage fundamental and quantitative tools to inform their ideas and place their bets accordingly. Sometimes they’re right, and sometimes, they get surprised.

Markets jumped off to a hot start this year, primarily fueled by expectations that the Fed would stop raising interest rates soon and perhaps even back them off a little by the end of the year. However, market participants were surprised by a slew of economic data that showed stronger growth and a possible second wave of inflation, and markets sold off the last few weeks of February on heightened fears that the Fed will have to continue (and possibly increase) raising rates to try and cool inflationary pressures.

By the end of the month, the S&P 500 closed down ‐2.44%. As did International Developed and Emerging Market stocks, with the MSCI World Ex‐USA finishing down ‐2.33% and the MSCI EM down ‐6.48% for the month. Mid‐Cap & Small‐Cap Growth were the best performers, and the Size and Quality factors led more broadly.

In fixed income, yields rose steadily through the month. The yield on the 2‐year Treasury note, which moves with expectations of interest rate policy, started the year at 4.41% but has since climbed to finish the month at 4.82%. The longer-dated 10‐year Treasury yield started the year at 3.88% and has risen to 3.92% by month‐end.

The Big Picture

At times markets roar, and their positive results buoy us. At other times, markets claw at us, and we desperately seek the green shoots of new growth to mark the end of a painful downturn. Often market participants can be gripped by “madness” as crowds coalesce around a popular opinion or outlook, only to be surprised by the turn of events. We believe the secret to successful investing over time is to stay consistent through up and down markets, maintain a level head, and avoid the temptation of going along with the crowd. We’re here to help you do just that.

Disclosures

Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.

S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.

Dow Jones Industrial Average (DJIA) Is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

The Nasdaq Composite Index (NASDAQ) measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies.

MSCI World Ex USA GR USD Index captures large and mid-cap representation across 22 of 23 developed markets countries, excluding the US. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes.

Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.

Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging market issuers. Index is USD hedged.

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