Stocks slide to close worst first half in 52 years: S&P 500 plunges 20.6% YTD, 8.4% in June.
US stocks fell last month, with the major averages logging steep declines for the month of June, the second quarter, and the first half of 2022 as concerns over heightened inflation and the prospects of a recession weighed heavily on risk assets. The S&P 500 fell by 0.9% on Thursday to reach 3,785.38, ending the first half of 2022 lower by 20.6% for its worst start to a year since 1970. The Dow ended Thursday’s session at 30,775.43, dropping 15.3% for the year-to-date for its worst first half since 1962. And the Nasdaq’s 29.5% drop so far in 2022 marked its worst first half on record. The risk-off mood in equities extended to other asset classes, including oil. West Texas Intermediate crude futures fell back to just over $105 per barrel and closed out its first monthly decline since November 2021. Bitcoin prices sank below $19,000. Equities have been hit hard for months now as investors have weighed persistently hot inflation against risks of an economic downturn. The Federal Reserve responds to inflation with faster tightening.
If you’ve been to the grocery store or pumped gas recently, you probably feel that we’re in a recession. It was reported by CNBC that inflation rose at the highest rate since December of 1981 in May of this year, with the CPI clocking in at 8.6% over the past 12 months. Economists were surprised by this report, as inflation had been high but mildly declining month to month before this report.
The good news may be that the worst may be over if we are in a recession. So even though past performance cannot predict future performance, after the market has already dropped, it might be a good time to invest or to stay invested.
Historical Recoveries to Consider
The Great Recession was formally documented in December of 2008. A rally began on March 6th, 2009. However, the recession did not end technically until June of 2009, three months later. That low in March started a 10-year bull market rally. After Covid, the recession officially ended in July of 2021, but that was 15 months after the start, and someone who waited for that formal declaration would have missed a 50% gain in the stock market from the lows in April of 2020 to July of 2021.
Evaluating Market Data
They say that bull markets take you to heights you’d ever imagine, but bear markets take you to levels you never thought you would see again. Earlier this month, the Value Line Geometric Index, a measure of the median stock in the United States, got down to levels seen in 2015, creating seven years of no progress on that index. The S&P 500 and Russell 2000 touched levels in 2020. Most shocking, the bond index fund AGG’s price is lower now than in 2003, so almost 19 years of price growth have been wiped out.
Tools and Portfolio Monitoring
As you know, we have many tools in our toolbox, including the ability to purchase investments that profit when the stock market goes down. Because the current environment is extremely challenging with large ups and downs, we initiated a change recently from previous months this year: We decided to add an inverse fund in June.
We invested in and eventually sold a fund that performs the opposite of the Nasdaq 100, so we effectively bet against some stocks with a portion of our portfolio and made money. Hindsight is always 20/20, though, and we wish we would have bought more of it. The market typically has drops and then rebounds, and there’s a chance after we believe the next rebound has peaked, we’ll add the inverse position again to potentially profit from a drop if it occurs.
Our ultimate goal is to make money, so we’re using what we believe to be all the appropriate tools in our toolbox to accomplish that goal potentially. This is why we manage our active portfolios daily.
Future Perspective
Anything is possible in the short term, but we believe that by year-end, stocks will rebound for many reasons, including low unemployment, the Coronavirus fueled shutdowns and restrictions being reduced worldwide (currently, there are lockdowns in parts of China), inflation will peak and then drop providing lower prices, consistent housing market prices despite high-interest rates, and consumer spending from Millennials. They have hit their peak spending years.
We are Here to Help
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We hope you and your family have an excellent, safe, and healthy start to the summer!
Kindest regards,
Bob, Ken, Jim, Zach, and James
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Notes & Disclaimer: Stock market indices, like the S&P 500 Index, are unmanaged groups of securities considered to be representative of the stock market in general or subsets of the market, and their performance is not reflective of the performance of any specific investment. Investments cannot be made directly into an index. Historical returns data are calculated using data provided by sources deemed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, or correctness. This information is provided “AS IS” without any warranty of any kind. All historical returns data should be considered hypothetical. Past performance is no guarantee of future results.
This communication is only intended for recipients who reside in states where our agents are licensed to sell these products. Investment advisory services are offered through Summit Financial Consulting, LLC, an SEC registered investment advisor. Registration does not imply a certain level of skill or training. Summit Financial Consulting Investment Advisor Representatives do not render tax, legal, or accounting advice. Insurance products and services are offered through Summit Financial Consulting, LLC. Note: Please update Summit Financial Consulting, LLC, if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy. All guarantees are subject to the claims paying ability of the issuing insurance company. Past performance cannot predict future performance. It is not possible to invest directly in an index. The Sherman Group, LLC is not associated with Summit Financial Consulting, LLC in any way, other than a research sharing partnership. Back testing is more heavily scrutinized than any other type of investment analysis because it can be updated to take advantage of past data. The algorithms and trading signals that we receive from the Sherman Group, LLC were created using back testing with the goal of creating a sustainable research process. We have reviewed data from the entire 20 year period which was mostly back tested, and have also personally reviewed the live data for the past 5 years and feel comfortable with it, but we encourage you to meet with us and ask questions so you are fully informed on what we plan to do with your investment assets at TD Ameritrade. It is important to look at fees, taxable repercussions, and trading frequency when looking at a rate of return number. There is no perfect system or research feed, and Sherman Group, LLC has had both longer term and short-term periods where they lost money. Investing involves risk, and these portfolios are no exception.