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2nd Quarter 2022 Market Review

Market Quarter Review

The S&P 500 Index (“index”) closed June 2022 at 3,785.38, 21.08% below its all-time closing high of 4,796.56 on 1/3/22, according to Bloomberg. The S&P MidCap 400 and S&P SmallCap 600 Indices stood 22.05% and 23.06%, respectively, below their record closing highs as of month-end. All three indices are in bear market territory, which is defined as a price drop of 20% or more from the most recent peak price of a security or index. S&P 500 Index posted a total return of -19.97% year-to-date through 6/30/22. Only one of the 11 major sectors was up on a total return basis. The index’s top performer was Energy, up 31.64%, while the worst showing came from Consumer Discretionary, down 32.82%. The energy sector has clearly received a boost from the oil and gas disruptions stemming from the sanctions levied against Russia following its invasion of Ukraine in February 2022 as well as US policies on pipelines and drilling at home.

The yield on the benchmark 10-year Treasury note (T-note) closed trading on 6/30/22 at 3.02%, up 17 basis points (bps) from its 2.85% close on 5/31/22, according to Bloomberg. The 3.02% yield stood 96 bps above its 2.06% average for the 10-year period ended 6/30/22. In June, the yield on the 10-year T-note reached as high as 3.48% at the close on 6/14, up 63 bps from 5/31/22. The Federal Reserve hiked rates by 75 bps on 6/15. Ironically, perhaps due in part to growing recessionary fears, the yield proceeded to plunge by 46 bps over the next two weeks. That is extremely volatile, in our opinion. Using the Consumer Price Index as a proxy for inflation, the real rate of return (yield minus inflation) on the 10-year T-note stood at -5.5% on 6/29/22, unchanged from 12/31/21.

Crypto currencies are also in a bear market with some being completely wiped out. Bitcoin closed the quarter at $19407, down from $46309 on Jan 1. Gold closed down 1.79% for the first six months of the year.

As noted above, the major U.S. equity indices have entered bear market territory. With respect to the S&P 500 Index, its first half price-only decline (does not include dividends) of 20.58% was the worst showing since a 21.01% decline in the first half of 1970, according to MarketWatch. Statistics provided by Dow Jones Market Data indicate that, since 1932, the S&P 500 Index has endured a first-half decline of 15% or more on five occasions (1932, 1939, 1940, 1962 & 1970). The index rebounded over the following six months in each of those instances. The average second-half return for the five occurrences was 23.7%, with a median return of 15.3%, according to MarketWatch. For comparative purposes, Forbes just reported that data from CFRA indicates that the average price-only return for the S&P 500 Index spanning the 14 bear markets since 1945 was -32%. The average length of those bear markets was 12 months and it took 23 months, on average, to fully recoup the losses sustained in said bear markets.

Thanks to First Trust Portfolios for some of the included data.

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