S&P 500 ends brutal first half 22 with biggest percentage loss since 1970

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 27, 2022. REUTERS/Brendan McDermid

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NEW YORK, June 30 (Reuters) – Deep stock and bond losses, wild market swings and a Federal Reserve determined to stem the worst inflation in more than forty years were among the hallmarks of U.S. markets in the first semester 2022.

The S&P 500 (.SPX) ended the first six months of 2022 with a loss of 20.6%, losing some $8.5 trillion in market value as the index posted its biggest first-half decline since 1970.

Earlier this month, the index confirmed the common definition of a bear market by closing more than 20% from its record high in January. Read more

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Bonds have fared little better, with the ICE BofA Treasury Index (.MERG0Q0) down around 10% this year, on pace with its worst year in index history dating back to 1997.

For now, investors see little respite from the turmoil that has rocked markets in recent months, fearing that the Fed’s fight against inflation could further dry up risk appetite while potentially plunging the US economy in recession.

The month ahead will bring another round of corporate earnings, the latest inflation data and culminate with a Fed meeting, leaving plenty of opportunities for markets to build on a nascent rally in equities that started on the mid-June or to look for new lows.

Soaring inflation forced the Fed to raise rates quickly in the first half of the year, reversing the accommodative monetary policy that helped the S&P 500 more than double from its March 2020 lows. Read more

The fall in the index brought down many of the high-growth stocks that have flourished in recent years. A high-profile casualty was Cathie Wood’s ETF ARK Innovation (ARKK.P), which holds post-pandemic favorites such as Zoom Video Communications (ZM.O), Teladoc Health Inc (TDOC.N) and Roku Inc ( ROKU.O), is down about 58% year-to-date. Read more

The fall in stocks has also put a strain on the popular buy stocks on weakness strategy, which has rewarded investors for most of the past decade but failed this year amid the S&P’s decline. . The benchmark has seen three rebounds of at least 6% this year that have reversed to fall below its previous low point. The latest rebound has lifted the index about 3% since its low in mid-June. Read more

Another popular approach that has suffered this year is the so-called 60/40 portfolio, where investors rely on a mix of stocks and bonds to protect against market declines, with stocks rising amid rising economic optimism and bonds strengthening in turbulent times. Read more

This strategy went 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% year-to-date, its worst performance since its launch in 2006.

The first half of the year saw volatility return to global financial markets dramatically, with stocks, bonds and currencies all rocked by central bank moves as well as rising geopolitical tensions.

But while the Cboe Volatility Index (.VIX), or “Wall Street Fear Indicator,” remained high throughout the year, it failed to close higher than 37, the average level that marked the latest lows in the market. This has led some investors to fear that the sale will go ahead. Read more

Few believe wild market swings will subside until there is evidence that inflation is easing, allowing the Fed to slow or stop tightening monetary policy. For now, warnings of an impending recession have intensified on Wall Street as the effects of rising rates seep into the economy. Read more

The Citigroup US Economic Surprise Index, which tracks where a core set of economic data has come in relative to expectations, shows incoming data missing estimates by the widest margin for about two years.

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Reporting by Saqib Iqbal Ahmed; Writing and additional reporting by Ira Iosebashvili Editing by Nick Zieminski and Diane Craft

Our standards: The Thomson Reuters Trust Principles.

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