Markets Stumble In The Second Quarter
Global equity markets had a disappointing second quarter with all major global equity markets in the red, leading to overall market declines not seen in decades.
To underscore how bleak it has been so far in 2022, consider that the S&P 500 recorded its worst first six months in 52 years and the Dow Jones Industrial Average recorded its worst first six months since 1962.
For the second quarter of 2022:
- The DJIA dropped 11.2%;
- The S&P 500 lost 16.7%;
- NASDAQ fell 22.7%; and
- The Russell 2000 (small company stocks) declined 18.4%.
The themes that drove market performance in the second quarter were the same worries that drove markets in the first quarter and towards the end of last year. The two most dominant themes continue to be inflation and the Fed – with the former rising to 40-year highs and the latter causing Wall Street to worry that the course of rising rates will lead to a recession.
The other themes were plummeting consumer confidence, rising food and gas prices, negative GDP (Gross Domestic Product) numbers, declining manufacturing, a cooling-off of the housing market, not-so-wonderful corporate earnings, continued supply-chain bottlenecks, and social unrest here at home.
Market Performance Around the World
Investors were unhappy with the quarterly performance around the world as well. All 36 developed markets tracked by MSCI were negative for the second quarter of 2022 – and all of them saw negative returns in the double digits. For the 40 developing markets tracked by MSCI, 39 of them were negative, too, with many losing more than a quarter of their value.
Bear Market Territory for the Year
U.S. equity markets turned in a terrible second quarter to add to a not-so-great first quarter, pushing the major equity markets to levels not seen in a long time. While many are suggesting that there is more pain to come, there are also plenty of others suggesting that the worst is behind us.
Are we at or near the bottom? At Patriot, we make no attempt to try and call market bottoms or tops, and the ‘gurus” on the financial news networks may be smart and convincing, but they do not have a crystal ball either.
YTD through the end of June:
- The DJIA is down 15.9%;
- The S&P 500 is down 21.0%;
- NASDAQ is down 30.3%; and
- The Russell 2000 is down 24.8%.
Positives
Patriot is in its 29th year helping clients achieve their financial goals and assisting them in the management of their portfolios. We have been through the Tech Bubble, 9/11, the Great Financial Crisis in 2008, and most recently, the turmoil caused by the Covid Pandemic. The good news is that these Bear Markets or challenging times always come to an end! This time will be no different.
From a historical standpoint, one year following a bear market bottom, the market is up on average at least 8.7%. Three years later, it is up on average at least 29% (7.5% annualized). For five years later, the figure is 39% (6% annualized). There are no guarantees that these historical recoveries will look exactly like the next. However, we are sure that the markets will recover.
At Patriot, we will continue to focus on what we can control – asset allocation, costs, and having a plan. In the coming months, we will look for the opportunity to rebalance our client’s portfolios and take advantage of any tax-loss harvesting opportunities.
We consistently communicate the importance of diversification through low-cost index funds, reasonable withdrawal rates, and not trying to time the market. Maintaining a disciplined asset allocation and a reasonable withdrawal rate helps one endure challenging times like this.
We know the markets will recover, but it is still hard to endure these downturns. If you want to talk and review your allocation or your goals, we are a phone call or e-mail away.