There are not too many good things to report for the second quarter of 2022. In fact, the media reported that Q2 ended the worst first half of the year since 1970! In a highly unusual occurrence, both stocks and bonds declined due to a confluence of shocks including heightened inflationary pressure, higher interest rates, risk of a slowing economy, and continuing supply chain disruptions, as well as fallout from the Russia/Ukraine war. Though the sea of red numbers in 2022 is discouraging (see table below), it is encouraging to note that a longer term focus shows that the equity year-to-date total returns do not negate the positive values of the prior two years (except NOT for fixed income, though!).
The table shows large negative returns across all the major asset classes for Q2 and for the first half of the year. Large cap U.S. equities (IVV) bounced off its low in mid-June but is still down -16.16% during Q2 and -20.00% YTD. Small- and mid-cap equities (SCHA and SCHM) did worse during Q2 being down -17.36% and -16.92%, respectively. Likewise, intl. developed and emerging market equities (SCHF/SCHE) were down but only a bit less. Bonds also were down during Q2, but not as much as equities with core bonds (SCHZ, -4.79%), inv. grade corporates (LQD, -8.40%), and high yield bonds (HYG, -9.48%) continuing to be victims of higher rates/widening credit spreads due to inflation and a tightening Fed.
I wrote 11 blog posts during Q2 and they all dealt with weak market performance and how to cope with it. As I have said many times and in my recent blog post, Spinning Wheel,
“If you are employed, have a long time horizon, and have sufficient income/net worth to support your desired lifestyle, it is in your best interest to stay invested. The trouble with getting out of the market now is that it will be harder to recover lost value when the market turns up again. Also, we will then need to agree on the correct re-entry point (very difficult!)”