Investors are saying goodbye to the first half of 2022 after the U.S. stock market suffered its worst performance in 50 years, driven by inflation and recession fears.
In the first six months of 2022, the Dow Jones Industrial Average tumbled 15.3 percent. The Nasdaq Composite Index, which slipped into a bear market this past spring, lost almost 30 percent. The S&P 500 fell 20.6 percent, sliding into bearish territory last month.
Other assets also slipped in the first half. Gold prices declined 1.36 percent to $1,805 an ounce, while silver plunged 13.6 percent to $20.165 per ounce. Copper also recorded a significant slump so far this year, plummeting 17.29 percent to $3.688 a pound.
But not everything was down during this span. Crude oil rallied 40.5 percent, natural gas advanced 58 percent, and gasoline surged 60.51 percent. Crops have also made gains so far this year, with soybeans, corn, and wheat up 7.7 percent, 4.3 percent, and 15.35 percent, respectively.
The greenback has been one of the best-performing assets in global currency markets. The U.S. Dollar Index (DXY), which gauges the buck against a basket of currencies, has soared more than 9 percent to 104.69.
Reading the Second Half
Now that the first six months are in the rearview mirror, what are institutional investors and market analysts anticipating in the second half? While inflation will continue to play a key role in the second half of 2022, the potential for recession continues to grow as a major concern for investors.Following the 8.6 percent consumer price index (CPI) reading, the increasing base case for many investors is a recession. The key debate is when an economic downturn could unfold, how long it will last, and how severe it could be when it strikes.
Mimi Duff, an investment strategist at GenTrust, is placing the odds of a recession at greater than 50 percent, according to a recent research note.
“Investors are mainly concerned about a potential recession as the Federal Reserve keeps raising interest rates,” Luzi Ann Javier, a markets analyst at the financial services firm Finder, told The Epoch Times.
According to Matt DeLong, the chief technology officer at Real Life Trading, the Fed’s balance sheet reduction could play a significant role in the financial markets in coming months.
The central bank confirmed that it would start unwinding its roughly $9 trillion balance sheet by $47.5 billion per month onto public markets.
“At that rate, it will be June 2026 before the Fed’s balance sheet is at pre-pandemic levels; that’s four years from now,” he told The Epoch Times. “The last time the Fed decreased their balance sheet like this, it was at a level of $2 trillion in 2007–2009 and it only was able to offload 20 percent of what was planned, we are currently at 400 percent more assets close to $9 trillion, not $2 trillion.”
While recession fears are making the headlines, stagflation—a blend of surging inflation and stagnant economic growth—is also popping up amid revised downward earnings and rising inventories, Duff added.
That said, earnings could be a notable factor for the rest of the year, says Tom Lauman, the head of investment strategy at Wealthplicity, an investment education firm.
Whether stocks are overvalued or undervalued will depend on inflation and earnings, Lauman noted.
Falling Stocks
Many investors’ favorite stocks over the past couple years have experienced an intense year-to-date selloff: Amazon has slumped 37 percent, Netflix has tumbled 70 percent, Tesla has declined 43 percent, Disney has dropped nearly 40 percent, and Apple has slid 25 percent.In addition, many stocks that were hyped by social media during a meme frenzy in 2021 have fallen considerably, too. AMC shares are down 48 percent, GameStop is down 20 percent, and BlackBerry has tumbled 42 percent.
Overall, the U.S. stock market could be bracing for a multi-year bear market, with so-called dead cat bounces and extended selloffs the new normal for now, according to Steven Jon Kaplan, the CEO at True Contrarian Investments. A dead cat bounce refers to a false rise in the price of a security or asset following a lengthy decline.
He told The Epoch Times that the current bear market will likely claw away more of the pandemic-era gains in 2022.
“My guess is that the second half of 2022 will consist of three pieces: 1) a modest rebound in July which might end in July or early August; 2) a dramatic decline which will lead to an important intermediate-term bottom this autumn; and 3) a year-end rally which should continue into some part of 2023,” he said.
Meanwhile, Kaplan finds gold and silver mining stocks to be attractive, including GDXJ, a fund of mid-cap gold mining and silver mining securities.
However, should price inflation start to show signs of slowing, a broad basket of stocks could begin to do well again, according to Nancy Tengler, chief investment officer and CEO of Laffer Tengler Investments.