Americans with stock portfolios or investment plans for retirement would probably prefer to forget the last six months.
The S&P 500, Wall Street’s broad benchmark for many equity funds, closed the first half of 2022 with a loss of more than 20% after starting the year with an all-time high. It is the worst start to a year since 1970, when Apple and Microsoft had not yet been founded.
Investors have been struggling with uncertainty and fear this year after a sharp rise in interest rates as the Federal Reserve and other central banks have struggled to control higher inflation in more than 40 years. Higher rates can reduce inflation, but they also slow the economy, increasing the risk of a recession. This has helped reduce the value of stocks, bonds, cryptocurrencies and other investments.
On June 13, the S&P 500 fell in a bearish market, falling more than 20% below the all-time high it set earlier this year. It is now 21.1% below the January 3 all-time high, returning to where it was in early March last year.
The Fed has been at the center of the market crash, raising its short-term interest rates three times this year. Its most recent increase earlier this month was three times the usual amount and its largest increase since 1994. The most disproportionate increases are almost certain.
“You can argue that they’re just playing the hand they dealt, but the reality is that they got stuck a little behind the curve and their pivot towards a much more aggressive political position has been the reason the market is has sold “. said Ross Mayfield, Baird’s investment strategist.
MOST CHATTANOOGA STOCKS FALL IN THE FIRST MIDDLE OF 2022
The stock price fell for seven of the eight listed shares based in the Chattanooga area during the first six months of 2022 and most local stocks fell more than the average fall in the S & P500 market. 20.6%.
Chattanooga-based insurer Unum Group benefited from higher interest rates that increased investment returns, but the market value of other local companies suffered from rising lending costs in so far this year.
This is how local stock prices ended in the first half of 2022:
One: $ 34.02, up 41.4%
Covenant Logistics: $ 25.09, down 4.5%
CBL Properties: $ 23.49, down 24.7%
Miller Industries: $ 22.67, down 31.2%
Mohawk Industries: $ 124.09, down 31.9%
Astec Industries, $ 40.78, 40.8% less
USA Xpress. – $ 2.68, down 54.3%
Dixie Group: $ 1.28, down 77.7%
A WINNER, MANY LOSERS
Technology companies, retailers and other stocks that were big winners during the pandemic have been some of the biggest losers this year. That includes a drop of more than 36% for Tesla, a drop of 71% for Netflix and a drop of more than 50% for Meta, Facebook’s father.
Rising bond yields have made these stocks seem overvalued in relation to less risky market corners, such as utilities, home goods manufacturers and healthcare companies. They are often called “value” shares to distinguish them from the shares of high-growth firms.
Energy is the only one gaining this year among the 11 sectors of the S&P 500. The sector has risen more than 29% so far, driven by rising oil and gasoline prices.
Of the 21 shares in the index that have risen more than 20% this year, all but seven are energy companies.
PAIN PUMP, ENERGY GAIN
Rising prices at the pump are the result of classic pressure.
Demand for gasoline and other petroleum products increased after the economy emerged from the cave created by the coronavirus. At the same time, crude oil and gasoline supplies have remained tight. The invasion of Ukraine disrupted a key energy-producing region of the world, with sanctions blocking Russia’s oil, which at the end of last year ranked third in the world in oil production.
Meanwhile, refineries have less capacity to convert oil to gasoline in the U.S. after several shutdowns during the pandemic. U.S. refining capacity has fallen for two years in a row, according to the U.S. Energy Information Administration.
As a result, gasoline prices have skyrocketed to records this year, with the national average of a regular gallon exceeding $ 5 per gallon earlier this month, according to AAA.
This means misery for many drivers, but a good reward for investors who bet on energy stocks.
However, for this strength to continue, concerns about a recession should diminish. Historically, recessions have led to falling oil prices destroying demand. And over the past week, the shares of energy companies have fallen even more than oil prices, as some investors were more afraid of this scenario, according to Barclays strategists.
BONDS SOLD
Sometimes even the quiet of the group loses their temper.
Bonds are supposed to be the most stable and reliable part of a portfolio. But not only did they hit investors with losses in the first half of this year, but they are about to hit one of their worst performances in history.
High-quality bonds and investment grade fell 11.3% during the first six months of 2022 from Monday. Any downward year is a remarkable thing for the good. The Bloomberg US Aggregate index, which many bond funds use as a reference, has only had four years of record losses dating back to 1976.
This year’s losses are entirely the result of high inflation and the Fed’s response. Inflation is generally anathema to investors because it erodes the purchase value of fixed-payment bonds they will make in the future.
The 10-year Treasury yield has more than doubled this year. It stood at 2.97% on Thursday. There may be more pressure as the Fed continues to raise rates, although some analysts say the worst of the damage could have happened.
Wells Fargo Investment Institute strategists recently raised their forecast of where the 10-year Treasury will end this year to a range of 3.25% to 3.75%. But they also see it moderating next year to a range of 2.75% to 3.25%.
CRYPTO CRASH
Proponents of cryptocurrencies have promoted them as, among other things, good hedging against inflation and a safe haven when the stock market falls. This year has not been any of these things.
Bitcoin sank from nearly $ 69,000 in November to less than $ 20,000 this month, in part because of the same forces that hit stocks: inflation and higher interest rates.
Some events exclusive to the cryptocurrency industry also took into account and eroded investor confidence. A so-called stable currency collapsed and cost investors about $ 40 billion. A hedge fund dedicated to digital assets was facing liquidation. And some banking companies, which take cryptocurrencies as deposits and then lend them, suspended withdrawals as they struggled to bolster their finances.