The 2nd quarter of 2022 brought continued and accelerating declines in global financial markets. Single-digit first-quarter losses in all major US and international equity indices turned to double-digit declines in the 2nd quarter, which ended with the S&P 500 (down 20.58%), Nasdaq Composite (down 29.51%), and Russell 2000 (down 23.93%) indices in bear-market territory year-to-date. International equity markets also posted Q2 losses as the MSCI EAFE index of developed markets fell 15.37% and the MSCI Emerging Markets index dropped 12.36%.
Other asset classes offered little refuge for investors’ portfolios. The US bond market continued to struggle as the Bloomberg Aggregate Bond Index dropped another 4.67% in Q2 to finish down 10.26% over the first half of 2022. Gold, down nearly 7%, failed to act as an inflation hedge while broader commodities indices posted steep declines over the latter half of the quarter to finish in the red as well.
The Federal Reserve Bank of Atlanta has forecast negative growth for the US economy in the 2nd quarter which, if it comes to pass when the statistics are compiled, would mark two consecutive quarters of contraction. Some economists consider this to mark a recession, although current conditions are showing mixed signals on the direction of the economy. There is no disagreement over the inflation issue, though. Wall Street traders and economic forecasters share the concern that higher prices for food and fuel will dampen demand for discretionary spending. The housing market drives a large share of discretionary spending, and has already slowed as inflation pushes interest rates, especially on mortgages, higher.
The financial markets are forecasting recession, and have not shown any signs of reversing course as we enter the 2nd half of the year. Diversification among multiple asset classes hasn’t protected investors in this latest volatility cycle, leaving many concerned about whether their retirement accounts can withstand a prolonged bear market. The 2nd quarter of 2022 was the worst ever for a portfolio 60% in the S&P 500 Index and 40% in the Bloomberg Aggregate Bond index since the inception of the Bloomberg index in 1976.
Markets don’t like uncertainty, which is currently in plentiful supply. Bear markets don’t typically end suddenly either, and the current one began just six months ago. Still, we think it prudent to heed the words of the legendary thinker Yogi Berra, who once said “It’s tough to make predictions, especially about the future”.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Market data provided by JPMorgan Asset Management and MarketWatch.com.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed
country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.