Worst First 6 Months in 52 Years

July 1, 2022

June is traditionally an uneventful month for the market with an average rate of return.  Coming into the month the S&P 500 was down 13.3% for the year and while we expected volatility to continue, we did not expect to see the widely followed index plunge to the lowest level since late 2020 and to end with the worst first 6-month performance in 52 years!  Oil prices did move lower, China started to slowly reopen, and we saw signs that inflation may have peaked. However, the good news was ignored in favor of a growing concern about recession.  Recessions are a normal part of the economic cycle, and in the last 150 years, we have seen them every 3 to 4 years and they typically last for less than a year.  What makes this one a little harder to predict is we have a high level of employment but historic rates of inflation.  The Fed will continue to raise interest rates until they see signs inflation is easing and that brings the concern of stagflation, inflation with no growth.  At the end of the month the S&P 500 was down another 8.4% and ended the first 6 months with a loss of 20.6%.  Oil prices declined 5.6% in June but are still 55% higher this year.  The interest rate on the 10 year Treasury note ended the month off the high but still 4.5% higher and is now up just 96% this year.

The month began on a Wednesday after the long Memorial Day weekend, and we learned the economy created a better than expected 390,000 new jobs in May which pushed interest rates higher and the market ended the first 3 days with a loss of .6%.  The first full week saw increased selling as oil prices moved to a new high and inflation accelerated to 8.6%, the highest level since the eighties.  At the end of the week the S&P 500 had plunged 6.2%.  The selling continued into the second full week after a 20% plunge in Bitcoin sent the S&P 500 down over 3% on Monday and brought the 3-day selloff to 9%.  The back half of the week saw more selling on news retail sales declined in May for the first time in 5 months, sending the S&P 500 down another 5.8% for a 2-week loss of 12%!  The third full week followed the first Juneteenth National Holiday and after the aggressive selling during the past 2 weeks buyers were looking to pick up beaten down shares and drove the market 6.4% higher.  The final few days of the month the selling continued, despite seemingly good news on China, oil prices and inflation.

We typically start this paragraph with a note on how the new month has traditionally performed, but in the current environment that is really not relevant or helpful.  We know the first half of this year registered the worst performance for stocks since 1970, what no one is talking about is 1970 ended with a gain of 4%.  We have taken defensive actions over the past few months by raising cash and moving all bond holdings to short term maturities.  After the aggressive selling we saw in June we would expect a “bear market bounce” and we intend to use that strength to buy a 10% inverse position as insurance.  The Federal Reserve is trying to slow the economy and they will be successful.  We are concerned about stagflation and in a bear market, rallies can be short lived.  We are likely in or going into a recession, the length and depth of which we do not know.  We do know that the excessive stock valuations that have concerned us are gone and there is good value in high quality stocks.  Inflation is likely the key to short term market moves.

If you know someone who would be interested in learning more about Greenberg Financial Group please contact us at 520-544-4909, or visit our NEW website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.  You can now listen to previous shows by going to www.iheart.com or using the iHeart app.