The month of June was characterized by market fluctuations and investor anxiety as the global economy poised itself for an uncertain future. These past several weeks have seen widespread belt-tightening brought on by high inflation levels, continued volatility, and fears of an impending recession buoyed by increasingly hawkish Fed policy. Market participants and everyday consumers alike have felt the effects of geopolitical instability and the ongoing energy crisis.
No one was spared from the recent round of selloffs and cost-cutting, as corporates, industrials, tech firms, and startups all experienced declines that were capped off by the S&P 500 index’s worst week in years.
The S&P 500 Dips into Bear Territory, Rebounds, then Dips Again
A ‘bear market’ is defined as a stock market drop-off of 20% or more from the most recent peak, and investors tend to use indexes like the S&P 500, Dow Jones, and NASDAQ to assess the broader market. A major selloff ahead of another rate hike by the Fed saw the S&P 500 shed nearly 10% in the span of a week, and on June 13, the index hit its lowest level in 14 months. Consequently, the large-cap index finished the week down 23.5% from its previous January high, signaling a bear market.
Bear market confirmation signals continued into the Q2 close as we observed the S&P 500 finish down more than 16% while the broader market closed down over 21% – signaling the largest first-half market decline since 1970.
Bondholders found some reprieve, however, on the back of better-than-expected inflation reports as indicated by the core personal consumption expenditures price index, which grew at a rate of 4.7% – .02% less than in May and came in slightly below expectations. At the time of writing, the 5, 10, and 30-year treasuries are quoted at 3.00%, 2.98%, and 3.16%, respectively.
Fed Hikes Rates Again
As borrowing costs continue rising, we will enter a low-growth environment. Keep in mind that we are coming out of a long period of unprecedented growth and access to cheap money–this will be a significant shift for businesses and individuals. This trend will likely continue into the next quarter, with rate hikes of 75 and 50 basis points predicted for July and September, respectively.
Cryptos Continue to Get Crushed
Cryptos have been taking a beating and haven’t yet displayed the “decoupling” from traditional assets that investors have been hoping for. It was believed that the crypto market might develop a negative correlation to the stock market—in other words, as equities fall, cryptocurrencies rise, and vice versa—but that hasn’t appeared to be the case, as Bitcoin, Ethereum, and others have declined even faster than their equity counterparts. To illustrate, Bitcoin’s share price has dropped 34% since June 1 compared to the S&P 500, which has fallen 8% during the same period.
Recession Watch
Chairman Powell recently reaffirmed the Fed’s commitment to curbing inflation at all costs, acknowledging in a statement to Congress that aggressively hiking interest rates could push the U.S. economy into a recession. It is too early to tell if and when a recession will come.
Action Steps Taken this Month:
We have maintained a higher cash position for most investors. For some of you, I have started to put some money to work slowly.
I sold FTGC (a commodity ETF) and CSSPX (a global real estate fund)
I replaced the two above with RAPIX (Cohen Steers Real Assets Fund)
This fund is made up of real assets that historically have done well in inflationary periods (real estate, commodities, natural resources, and infrastructure stocks)
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Investment advice is offered through Strauss Financial Group, Inc., a Registered Investment Advisor.
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