Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13


Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79

The first six months of 2022 saw the S&P 500 decline nearly 24% from its all-time high of 4,796 on January 3rd to a low of 3,667 in mid-June. The index finished its worst first half since 1970 at 3,785.38. Even more noteworthy than the size of the decline was the breadth: at the mid-June lows, the stock market experienced five trading days on which 90% of the S&P 500 holdings closed lower.

Looking at today’s world, where things seem more chaotic than ever and the market is in the middle of a significant decline, I would be remiss if I didn’t first highlight the most important point of this letter: the easiest way to destroy a lifetime of investment success is to sell stocks into a bear market.

With that said, a few points that may help make sense of the current situation. Going back to the 2008/9 financial crisis, S&P 500 total returns annualized over 17% through the end of 2021. In the last three years of that bull market, the S&P soared 24% annually, capping one of the greatest stock market runs ever. With inflation spiking over the last twelve months, it is evident that the markets advance over the last three years was fueled partly by an excess of fiscal and monetary stimulus to offset the economic impact of the pandemic. More simply, the Federal reserve created far too much money and took too long to wind down stimulus programs and now the Fed is caught playing catchup to try and control its inflation mandate.

Certainly, the war in Ukraine, China’s “Zero-Covid” policy and ongoing supply chain issues have compounded to the global inflation problem, but monetary policy and stimulus were the primary drivers that got us into this mess, and monetary policy must get us out. This solution carries with it the possibility that the Fed will be forced to overtighten policy, causing a “rough landing” and a recession for the economy. And while it may be an unpopular position, if a near term economic slowdown is what it takes to compress inflation, it is likely the lesser of two evils. The cure is not worse than the disease.

For long term, goal focused investors, nothing has changed. Bear markets and recessions are a side effect of investing in stocks, a side effect that can’t be reduced without reducing our long-term return. Acting on a long term financial and investment plan, rather than current events, is painful in the short term but has historically yielded better results for investors. After nearly three years of chaos—a never ending pandemic, a bitter election that still is talked about daily on mainstream media, soaring inflation and gas prices and a war in Europe—everybody is understandably exhausted. Times like these make the illusion of “safety” in cash the strongest, when in reality it is the siren song that can permanently derail a financial plan. This too shall pass.


Second Quarter Review

The S&P 500 continued to decline in the second quarter, hitting its lowest level since December 2020. After a rebound in March, the markets experienced more downside pressure due to large scale Covid lockdowns in China, where even small outbreaks have been met with city-wide shutdowns. To put this impact in perspective, at the peak of the most recent China lockdown it is estimated that 300 million people and 80% of China’s economic output were essentially shut down. This obviously has a significant impact on the global economy and markets, which are already dealing with numerous headwinds and the possibility of a recession in the near term.

In May, selling continued as the Federal Reserve raised interest rates by .50%, the largest single rate hike in 22 years. There was hope that inflation had peaked, but the June inflation number rose 8.6% year-over-year, the highest reading since 1982. This was met by the Federal Reserve hiking rates again by .75%, the highest hike since 1994. Additionally, Fed Chair Powell hinted that similar rate hikes were on the table in the near term. The markets showed some stabilization toward the end of the quarter as investors became hopeful that inflation had reached a peak and the markets were oversold. Overall, the first half of 2022 was one of the worst on record.

Third Quarter Outlook

Looking ahead, much of the same concerns we dealt with in the first half of the year remain and it is easy to build a case that the stock market could get worse before it gets better. However, while the market losses we have experienced in 2022 are painful, the S&P 500 now sits at a much more attractive valuation level than it has in some time. There is more negativity being priced into today’s market than we experienced in 2008, setting up the possibility for surprises to the upside.

Markets have priced in higher for longer inflation as well as numerous additional hikes from the Federal Reserve into 2023. If we see a peak in inflationary pressures in the next few months it is likely the Federal Reserve will back off its expected rate hike schedule which should be a positive for stock and bond markets.

The Chinese economic shutdown has increased global recession concerns, but it appears that at least for now Shanghai is passed its latest Covid outbreak and economic activity is returning to normal. If things continue to improve, this should moderately help the global growth and inflation picture.

Regarding the war in Ukraine, the human tragedy continues with no real resolution in sight, but the conflict has not expanded beyond Ukraine. While this continues to be a wild card, many analysts believe that there will be some sort of conflict resolution this year which would be a positive for global stock and bond markets.

While investment markets have experienced significant headwinds through the first half of 2022, a great deal of bad news is currently being priced in creating opportunities for investors. The S&P 500 has declined more than 15% through the first six months of the year five times since 1932 and in all those instances the market would register solidly positive returns in the second half. Obviously, past performance can’t predict future results, but market history does provide a clear example that positive surprises often happen when it looks like things can only get worse.

We understand how difficult this current environment is. Staying positive and focusing on long-term goals and objectives becomes harder when it seems like each day is met with more bad news. We are here to help and talk through anything you are dealing with or planning for, please don’t hesitate to reach out.