The first half of 2022 was one of the most difficult investment environments on record. U.S. stocks entered a bear market, while bonds had their worst ever start to the year down -10.4%.
Inflation hit a 40-year high of 9.1% in June. The Fed hiked rates three times this year for a total of 1.75% to help cool the economy. Supply chain issues persist and Russia’s war in Ukraine marches on.
It’s difficult to assess how much bad news is priced into the markets, but there are indications of improvement in certain areas. Inflation is showing signs that it may have peaked; and stock market valuations are closer to their historic average.
We’ve seen some relief in the markets in the first half of July. Only history will tell us if this bear market is over or if we have more to go. In the attached Capital Markets Review we include an interesting datapoint from Ned Davis Research related to stock market attribution around historic bear markets.
With volatility comes opportunity. While we continue to favor shorter duration bonds and value stocks, we’re starting to see potential opportunities Internationally, in convertible bonds and select alternatives.