Hope everyone has some awesome plans to celebrate the July 4 holiday!
Before getting into the monthly returns, we wanted to address just how poor overall returns have been during the first 6 months of the year. Simply put, returns have been historic, and not in a good way.
- For the S&P 500 going back to 1970, the first 6 months of 2022 saw a return of -20.0%, which the worst 6-month start to a year on record. The next worse 6-months starts to a year came in 1970 (-19.5%), 2002 (-13.2%) and 2008 (-11.9%).
- Clients may be wondering what is next? Well, for the second half of the year as it relates to the S&P 500, it is a literal coin flip. Per S&P Dow Jones Indices, since 1957, in the years when the S&P 500 had a negative first half, it had a negative second half about 50% of the time, which also means it has a 50% chance of being positive for the second half of 2022.
- For the years shown above, the S&P 500 saw a second half return of +29.1% in 1970, while it fell in 2002 (-10.3%) and 2008 (-28.5%).
- For the Bloomberg Barclays US Agg, going back to its inception in 1976, the first 6 months return of -10.3% in 2022 was the worst 6-month start a year on record, and it's not even close. The next worse 6-months starts to a year came in 1994 (-3.9%), 2013 (-2.4%), and 1984 (-1.7%).
Source: Morningstar Direct, past performance is not indicative of future results
In equities:
- June was a very tough month for equities, which brought to close a difficult Q2 and first 6-month period. Overall, global equities as represented by the MSCI ACWI dropped -8.4% in June, -15.7% for Q2, and an even larger -20.2% YTD.
- It is no surprise what is driving equity returns lower: it is a cocktail of continued supply/demand imbalances from Covid, inflation levels we have not seen in decades, the war in Ukraine (which has further exacerbated inflation concerns, especially as it relates to food and energy), and rising interest rates (mostly to combat higher inflation).
- For June, all equity indexes experienced negative returns. Frontier Markets saw the best equity return (-5.3%) while MSCI EAFE Small Cap (-11.0%) was the worst.
- Russell indexes underwent their annual rebalancing in late June. As you may know, Russell indexes are built so that stocks may actually be included in both their Growth and Value indexes. With the recent downturns we have seen in the equity markets, we actually saw several companies that were recently well entrenched on the "growth" side now also find themselves on the "value" side at the same time. For example, Meta Platforms (Facebook's parent company) and Netflix actually have higher weights in the R1000V than they do in the R1000G (source: iShares.com, a review of the holdings for IWD and IWF as of June 30, 2022).
In Fixed Income:
- The 3-month Tbill (0.0%) and 10+ Yr munis (1.8%) were the only fixed income indexes with a positive return for the month. The 3 month Tbill was also the only fixed income index with a positive return over the last 3 months and YTD.
- Though still negative, munis have outpaced their Treasury and Corporate counterparts over the last 3 months, YTD, and last 1 year.
- Global Agg ex-US (hedged to USD) returns, while still negative, has outperformed its US Agg counterpart for almost all time periods shown.
- While ST TIPS have provided a relative benefit to FI portfolios YTD, the index has still dropped -2.1%.
- As the possibility of a recession has increased for 2023, the 10 Yr Treasury yield fell dramatically from its high. It was only June 14 when it closed at 3.49%, but fell to 2.98% to close June as investors looked for the relative safety of Treasury bonds.
As always, please let us know if you have any questions by emailing support@xyinvestmentsolutions.com.
As an additional note, please keep in mind that these reflect historical performance of the current models, not necessarily how accounts were invested in the past.