The S&P 500 and the US equity market had a brutal first half of 2022. With inflation fears lingering, the market may continue to come under selling pressure.
The first half of 2022 has been really painful for stock market investors. On Thursday, June 30, the S&P 500 ended down 0.88%, posting its worst half in more than five decades. As of yesterday’s close, the S&P 500 is down more than 21% since the start of the year.
Like the S&P 500, the Dow Jones Industrial Average also ended down 0.8%, or 253 points lower. Similarly, the Nasdaq Composite posted a loss of 1.33%, or 150 points.
The second sentiment of the market becomes more and more negative as the quarters go by. The second quarter last was marked by a sharp correction in all three indices, with the Nasdaq Composite losing 22% in just 90 days. It is also its worst quarterly performance since 2008.
The unprecedented money-printing measures taken by the Federal Reserve after the pandemic have led to high inflation, according to many analysts. Inflation in America is currently at its highest level in four decades and the Fed is determined to get it under control. Last month the Fed announced a 75 basis point hike in interest rates. She hinted that further rate hikes would be possible if inflationary pressure continues.
Thus, the equity market is trying to adapt to the new reality where the Fed is trying to control inflation while risking to jeopardize growth. On the other hand, the sharp rise in bond yields caused technology stocks to fall. Investors moved their money out of growth-oriented assets into stable assets.
Tech stocks have suffered massive corrections so far in 2022. Giants like Alphabet and Apple have also suffered a correction of 24% each. On the other hand, Meta Platforms, the parent of Facebook, corrected by 52%, while Netflix Inc corrected by more than 71%.
Economy and stock market
As we said, the US economy is in a frenzy when it comes to building up inflationary pressures. On Thursday, the Commerce Department reported that the core price index for personal consumption expenditures jumped 4.7% in May. These are currently levels not seen since the 1980s.
Similarly, the Chicago PMI, which tracks business activity in the region, came in at 56 for the month of June. Given these economic concerns, the Fed is likely to take aggressive action going forward. However, the fear is whether the Fed’s interest rate hikes will lead to a recession.
Many analysts estimate that a recession is likely to hit America within the next 12 to 18 months. Thus, some believe that the market has yet to bottom out. George Ball, chairman of Sanders Morris Harris, said:
“We don’t think the stock market has bottomed out yet and we see more declines to come. Investors should maintain high levels of cash at this time. We believe the S&P 500 will bottom out around 3,100 as the Federal Reserve’s aggressive but necessary measures to fight inflation are likely to depress corporate earnings and lower stocks.
Some analysts believe that inflation is likely to remain sticky and will persist longer than expected.