The S&P 500 ended a tough first half of ’22 with the biggest percentage loss since 1970

A trader works at the New York Stock Exchange (NYSE) in New York City, US, June 27, 2022. REUTERS/Brendan McDermid

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NEW YORK (Reuters) – Sharp losses in stocks and bonds, staggering market volatility and a Federal Reserve bent on curbing the worst inflation in more than forty years were among the hallmarks of US markets in the first half of 2022.

The Standard & Poor’s 500 Index (.SPX) ended the first six months of 2022 with a loss of 20.6 percent, shedding about $8.5 trillion in market capitalization as the index posted its biggest drop in the first half since 1970.

The index earlier this month confirmed the common definition of a bear market by closing more than 20% from its January high. Read more

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Bonds have fared slightly better, with the ICE BofA Treasury Index (.MERG0Q0) down about 10% this year, at the pace of its worst year in the index’s history since 1997.

For now, investors are seeing little relief from the volatility that has hit the markets over the past several months amid concerns that the Fed’s fight against inflation will dry up risk appetite with the prospect of tipping the US economy into recession.

Next month will bring a new round of corporate earnings, the latest inflation data and culminate in the Fed meeting, leaving plenty of opportunities for markets to build on an emerging rally in stocks that started in mid-June or look for new lows.

High inflation forced the Federal Reserve to raise interest rates quickly in the first half of the year, reversing the easy monetary policy that helped the S&P 500 index more than double from its March 2020 lows. Read more

The index’s slide has hit many of the high-growth stocks that have boomed in recent years. One notable victim was Cathie Wood’s ARK Innovation ETF (ARKK.P), which holds post-pandemic favorites such as Zoom Video Communications (ZM.O), Teladoc Health Inc (TDOC.N), and Roku Inc (ROKU.O), It’s down 58% year-to-date. Read more

The decline in stocks has also badly tested the popular strategy of buying stocks on weakness, which has rewarded investors for the better part of the past decade but has faltered this year amid the S&P slump. The benchmark index has seen at least three 6% retracements this year which have been reversed to drop below the previous low point. The recent rebound has sent the index up 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, in which investors rely on a mix of stocks and bonds to protect against a market downturn, with stocks rising amid economic optimism and bonds boosting during turbulent times. Read more

This strategy veered in 2022 as the Fed’s hawkish outlook affected both asset classes. The BlackRock 60/40 Target Allocation Fund is down about 16% since the beginning of the year, its worst performance since its launch in 2006.

The first half of the year saw the return of volatility to global financial markets in a spectacular fashion, with all stocks, bonds and currencies affected by the central bank’s moves as well as escalating geopolitical tensions.

But while the Cboe Volatility Index (.VIX), or “Wall Street’s fear gauge” has remained high for the year so far, it has failed to close above 37, the intermediate level that marked previous market lows. This has led some investors to worry that the sale may not take place. Read more

Few believe the wild volatility in the markets will subside until there is evidence that inflation is abating, allowing the Federal Reserve to slow or stop its monetary tightening. For now, warnings of an impending recession are mounting on Wall Street, as the effects of higher prices seep into the economy. Read more

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

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(Narrated by Saqib Iqbal Ahmad). Additional writing and reporting by Ira Eosbashvili Editing by Nick Ziminsky and Diane Kraft

Our Standards: Thomson Reuters Trust Principles.

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