The half-time whistle has sounded for 2022, and it is one of the worst first halves in a very long time for the stock market - not since 1970 has this US stock index declined more than 20% in the first six months of a year. Coincidently, that was also a time of rapidly rising inflation and rising rates to combat it, which echoes in this market decline, albeit there are many structural differences between the two compared years.
A decline of more than 20% also famously (or infamously) is the mark for when investors consider a bear market to officially have begun. While stocks have recovered slightly in the first part of July to get back on the right side of that limit, it is still clear that this current market environment is not fitting stocks at all.
As predicted a month ago in the May 2022 monthly update, the Fed's chairman Powell has increased the steering rate by 75bps to 1.50%, and as non-farm payrolls came in stronger than expected for June (372k added jobs vs. expected 268k), there is room for further sharp hikes from the the US central bank as the hikes so far have not adversely impacted the employment rate, why further hikes would be possible without hurting the economy as much as first feared. It is likely that the Fed is chasing a recession as it is currently only focusing on inflation as stated by J. Power after the June meeting, why rising rates can be expected into a recession.
The commentary on the latest Macro Voices episode with an interview of Jeff Snider (7 July 2022), is however that from looking at the eurodollar curve, the market expects some additional hikes into the autumn and end of 2022, before the Fed lifts its foot from the throttle and perhaps starts easing again into 2023/2024. This possibility is something to bear in mind while allocating assets ahead, but much uncertainty remains.
Let us take a closer look at how this all affects the markets and my All Seasons Portfolio.