NEW YORK, June 30 (Reuters) - Steep losses in stocks and
bonds, dizzying market swings and a Federal Reserve intent on
curbing the worst inflation in more than forty years have been
among the hallmarks of U.S. markets in the first half of 2022.
The S&P 500 finished the initial six months of 2022
with a 20.6% loss, shedding some $8.5 trillion in market value
as the index logged its steepest first-half decline since 1970.
The index earlier this month confirmed the common definition
of a bear market by closing down over 20% from its January
Bonds have fared little better, with the ICE BofA Treasury
Index down about 10% this year, on pace for its worst
year in the index's history going back to 1997.
For now, investors see little respite from the gyrations
that have pummeled markets over the last several months amid
worries that the Feds fight against inflation will further dry
up risk appetite while potentially throwing the U.S. economy
The coming month will bring a fresh round of corporate
earnings, the latest inflation data and culminate in a Fed
meeting, leaving plenty of opportunities for markets to build on
a nascent rally in stocks that began in mid-June or seek out
Soaring inflation forced the Fed to quickly raise rates in
the first half of the year, throwing into reverse the easy
monetary policy that helped the S&P 500 more than double from
its March 2020 lows.
The indexs slide has pummeled many of the high-growth
shares that prospered in recent years. One high profile casualty
has been Cathie Woods ARK Innovation ETF, which holds
post-pandemic favorites such as Zoom Video Communications
, Teladoc Health Inc and Roku Inc, is
down about 58% year-to-date.
The tumble in equities has also severely tested the popular
strategy of buying stocks on weakness, which rewarded investors
for the better part of the last decade but has floundered this
year amid the S&Ps decline. The benchmark index has seen three
rebounds of at least 6% this year that have reversed to fall
below its prior low point. The latest bounce has the index up
about 3% since its mid-June low.
Another popular approach that has suffered this year is the
so-called 60/40 portfolio, where investors count on a blend of
stocks and bonds to protect against market declines, with
equities rising amid economic optimism and bonds strengthening
during turbulent times.
That strategy has gone awry in 2022 as expectations of a
hawkish Fed weighed on both asset classes. The BlackRock 60/40
Target Allocation fund is down about 16% since the start of the
year, its worst performance since it launched in 2006.
The first half of the year saw volatility return to global
financial markets in spectacular fashion, with stocks, bonds and
currencies all jolted by central bank moves as well as surging
But while the Cboe Volatility Index, or "Wall Street
fear gauge," has remained elevated through the year to date, it
has failed to close higher than the 37, the average level that
marked past market bottoms. That has led some investors to fret
that the selling might not be done.
Few believe the wild swings in markets will subside until
there is evidence that inflation is cooling, allowing the Fed to
slow or halt its monetary policy tightening. For now, warnings
of a looming recession have grown louder on Wall Street, as the
effects of higher rates seep into the economy.
The Citigroup U.S. Economic Surprise Index, which tracks
where a core set of economic data series has been coming in
relative to expectations, shows incoming data missing estimates
by the largest margin in about two years.
(Reporting by Saqib Iqbal Ahmed; Writing and additional
reporting by Ira Iosebashvili
Editing by Nick Zieminski and Diane Craft)