Quarterly Market Review 2022 Q2

2022 Q2 Market Snapshot

A bumpy first quarter of 2022 turned into a volatile first half of the year, both in stock and bond markets. The Russian invasion of Ukraine continues to disrupt global markets, impacting global energy and food security. Domestically, what started as uncertainty about Fed policy responses to persistently high inflation evolved into concern about aggressive Fed rate increases leading the U.S. economy into a recession. A few interesting data points from Q2:

• 2022 marks only the second time in more than 40 years that stocks and bonds both posted losses for two consecutive quarters.

• U.S. economic data continues to show strong job and wage gains, even with inflation at a 40-year high.

• The consumer price index (CPI) marked inflation at 9.1% in July.

• Despite losses in the first half of 2022, stocks are still up 9.7% on average per year over the last three years.

• Q2 was especially rough in the cryptocurrency market, with Bitcoin losing over 56% of its value – the largest quarterly drop in history.

  
  

Below is a snapshot of key top-line economic indicators:

Here's a quick look at second quarter 2022 returns:

U.S. Stocks

The U.S. stock market dipped into official "bear market" territory (defined as a stock market decline of 20% or more) in mid-June, but recovered slightly to end the quarter down about -17%. As can be seen in the chart below, Q2 was marked by downward sloping volatility, largely attributable to concern about how much, and how quickly, the Fed will raise interest rates, and the impact that will have on the U.S. economy. Energy was the only sector in the U.S. market that was up in Q2 (+30%) after being down -6% at the end of Q1.

International Stocks

International markets fared poorly as well, down -14.6%, and emerging markets down -11.4% for the quarter. China was the one notable exception. Following a -13% decline in Q1, China was up +8.5% in Q2 after an easing of Covid restrictions and new measures to jumpstart the economy.

Fixed Income

The Fed raised the federal funds rate in quick succession: +0.25% in March, +0.50% in May, and +0.75% in June. Interest rates and bond prices move in opposite directions. As a result, bonds of all kinds were down in price for the quarter.

The Fed Funds Rate is now at 1.75%, and another rate hike is planned for July before the Fed takes a summer break in August. The market expects the Fed to raise rates by another 0.75% when it meets the last week of July. 

The broader bond market response to Fed rate hikes has led to a lowering of longer-term interest rates. As of today, the 2-year Treasury yield was higher than 5-, 10- and 30-year Treasury yields, signaling expectations for an economic slowdown ahead.