Paul Tarins, RICP®,WMCP®,CSRIC™
Market in Review for June 2022
The second quarter of 2022 inflicted further damage on global markets, bringing major indices well within the edges of bear market territory. Growth stocks continued to be particularly affected by their sensitivity to future earnings expectations and increasing risk premiums. As the quarter progressed, the headwinds of rising inflation and interest rates evolved into fears of more serious economic slowing and growing odds of a global recession ahead. As a result, last June experienced a steep ‘everything down’ month for markets, capping off the worst first-half since 1970 (Bloomberg, “The Worst Stock Selloff in Half a Century…”, 7/2/22).
It is important to recall that this was always in the cards to some extent given pandemic-era stimulus and supply chain disruptions. This is not to suggest that the degree of the current market retrace was predictable per se, but simply that the surge in economic-reopening growth was not sustainable. Although consumer sentiment has also soured, the jobs market remains robust. Thus, while a 'technical recession' now appears all but inevitable (two consecutive quarters of economic contraction), any slowing still looks to be mild. As we will conclude, this is critical because it speaks to how close markets may be to 'the bottom' within this bear market cycle.
Global Asset Class Returns June & Year-to-Date 2022
US large capitalization stocks (‘SPY’ ETF Proxy) retreated -8.2% last June. Overseas stocks performed slightly worse on US Dollar strength, while emerging markets were able to outperform on a modest China rebound. Fixed income securities also added to their annual losses, with long-dated treasuries remaining among the worst performing assets of the year, down about -21.9% to-date (‘TLT’). Even the year’s stalwart, commodities, fell back hard in June, down -7.5% (‘DBC’). This is a positive for inflation concerns, but likewise underscores growing concerns about future growth.
It may be trite to state that the upcoming earnings will be critical, but it is especially true this quarter given the current precarious market state. Bear markets that are not associated with recessions tend to average peak-to-trough declines in the mid-twenty percent level, while those within recessions average in the mid-thirties (MarketWatch, “How Long Will Stocks Stay in a Bear Market?”, 7/2/22).
While we cannot know which case we are in just yet, it is a positive that valuations have moved nearer more normal historical ranges as compared to where they ended last year. Further, past negative first halves have historically ended more positively (Ned Davis Research). For this to occur; however, markets will likely require some catalyst to begin the healing process, whether that be signs of falling inflation, a less hawkish Federal Reserve, or some resolution to the conflict in eastern Europe. Until such time, we continue to closely monitor client accounts during this volatile period.
Source: Index proxies based on dividend adjusted ETF time-series data from CSI Data, Inc. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice.
Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.