Q2 2022 Recap

Indices YTD Performance (1/1/22- 6/29/22)

This has been one of the worst starts to the year for the S&P 500 dating back to 1970:

Yes, this sounds/is bad, but it’s not THAT uncommon.

Bob Pisani, CNBC contributor, pointed out that there’s been 13 periods where the S&P 500 has dropped more than 20% since 1957. Put another way, about once every 5 years, the S&P 500 drops more than 20%.

What makes this sell off feel even worse is the consistent volatility we are experiencing.

This chart by Charlie Bilello is a great summary of the number of large down days for the S&P 500 dating back to 1928:

If we were to annualize the 2022 YTD numbers, these large declines would compare to 2008 and 2000-2002.

Inflation:

Inflation continues to be at the forefront of investors and policy makers minds and some would argue it is the #1 issue we are facing.

The Federal Reserve is now adamant to break the back of inflation, even if that means putting our economy into a recession.

Although we have seen some improvements, the oil surge continues to be the problem. Consumers are feeling it everywhere: at the pump, grocery stores, services (i.e. flights). I’d argue that these are all interconnected and being driven by oil prices.

Although oil did have its first monthly decline since November of 2021, the price remains stubbornly high and needs to contract further in order to ease some of the concern here.

Also, housing makes up a third of the CPI reading and that doesn’t appear to be slowing down yet…

Some good news?

• Shipping rates are coming down, as are trucking rates.
• Used car prices are also less expensive since January.
• Lumber prices and industrial metals have also weakened.

Sentiment:

Sentiment around the world, but specifically in the US, is plummeting. Slowing growth, earnings decline, and monetary tightening has investors and consumers weary.

The University of Michigan has been tracking consumer sentiment since 1952 and it’s at historic lows:

It’s hard to find people who are overly optimistic on where things stand. And rightfully so.

Stocks are down, bonds are down, crypto is down. There are very few places to hide.

This tweet made me laugh and cry at the same time…

Just how bad has it been for some of these companies?

Michael Batnick did a deep dive into companies that are down 80% from their highs:

Rivian, good lord…

Unemployment Rate:

The unemployment rate remains at historic lows and the number of job vacancies continue to outpace people actively seeking employment.

But could we start to see the unemployment rate move higher?

You are starting to hear about widespread layoffs and companies rescinding job offers. However, layoffs seem to be industry specific (tech, crypto, mortgages) as of right now.

The four-week average of new jobless claims rose, but not significantly. Worth noting that the Fed is predicting unemployment will climb for three consecutive years.

But they also predicted that inflation was transitory…

Conclusion:

With sentiment being so low, you would believe that we are either in a recession or will experience one in the next 6-12-months.

But some of the data points we are seeing don’t necessarily guarantee an imminent recession.

A lot of the damage could already be done and inflation could slowly but surely be coming down.

I also liked the phrase Derek Thompson laid out in his latest podcast, ‘Plain English’: “Everything is terrible, but personally I’m fine.”

We love to complain about the environment we are in but generally feel pretty good about where we individually stand.

So, during times like these, try to keep your emotions in check. I am aware how uncomfortable and painful stock and bond market declines can feel.

But, remember – “The Stock Market is a device for transferring money from the impatient to the patient “ Warren Buffett

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.