The first half of 2022 is over and for global markets it was a rough ride. Virtually all asset classes saw a sharp turn lower.
The S&P 500 (SPY) had its worst first half of the year since 1970, down 21%.
*Chart from Zerohedge.
The NASDAQ (QQQ) was down 30%, its worst first half since 2002 when the index was still falling from the 2000 tech stock crash.
Bonds were also hammered. The Vanguard Total Bond Market (BND) fell 10% in the first half. US Treasuries suffered their worst first half of the year ever, 30-year bonds (TLT) were down 20%.
*Chart from Zerohedge.
Cryptos were rocked. Bitcoin (BTC) is down 65% from the 52-week high. Etherium (ETH) is down around 75% from the 52-week high.
Gold (GLD) held up trading mostly even.
With inflation running hot, a broad basket of commodities was up around 20%.
Oil led the way, up by 40%, lifting energy stocks as the only sector to gain in the first half.
We all know why markets struggled.
- Inflation at a 40-year high is killing consumers and small businesses.
- The Fed is raising interest rates to fight inflation and its crushing economic growth.
More importantly, investors want to know what to expect moving forward. Here’s how I think the second half of the year will play out.
Here is My Forecast for the Next Few Months
I am expecting markets to remain fairly volatile this summer. But as we move closer to fall, I expect volatility to temper and I expect a broad rebound across most asset classes, including stocks and bonds.
I am expecting markets to stabilize for three reasons.
Inflation will likely peak soon: Unfortunately inflation will likely remain high for at least 2-3 years. However in the short run, annual peak inflation should happen in the next few weeks with peak driving season. After that, slower demand for gasoline should help temper the price of oil and gas. If the pace of inflation slows even a little it would give stocks and bonds a nice boost.
Interest rates should stop rising: The current forecast predicts that the Fed will be done raising interest rates by the end of the year. When rates are done rising, it would be a big boost to the economy and markets. Keep in mind, markets are forward looking by 3-6 months. So if the Fed does stop raising rates by the end of the year stocks and bonds should start pricing that into the market this summer.
History says a stock rebound is likely: Stocks just had a very rough first half of the year. However history shows that after a sharp downturn, a rebound is a high probability. Take a look at the table below.
*Chart from bespokeinvest.
What is the Plan Moving Forward?
I think the S&P 500 and stocks in general are close to the bottom of this move lower. The index is down 21% on the year and this has historically been an excellent time to be buying. I have been buying for clients with cash and I am confident that this will end up being a very good entry point within a few months.
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading. Author Michael Vodicka owns shares of the S&P 500 (IVV), Vanguard Global (VT), NASDAQ 100 (QQQ), Bitcoin, Etherium and Litecoin.
