The S&P 500 and the US equity market have had a brutal first half of 2022. With inflation fears sticking around, the market could likely continue to stay in selling pressure going ahead.
The first half of 2022 has been really painstaking for stock market investors. On Thursday, June 30, the S&P 500 (INDEXSP: .INX) ended 0.88% down recording its worst half in over five decades since 1970. As of yesterday’s closing, the S&P 500 is down more than 21% year-to-date.
Along with the S&P 500, the Dow Jones Industrial Average (INDEXDJX: .DJI) also ended 0.8% negative or 253 points down. Similarly, the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) recorded a 1.33% loss dropping 150 points.
Market second sentiment has been turning more and more negative with every passing quarter. Last quarter Q2 witnessed a sharp correction in all three indices with Nasdaq Composite shedding 22% in just 90 days. This has also been its worst quarterly performance since 2008.
The unprecedented money printing measures by the Federal Reserve post-pandemic have resulted in high inflation, as per many analysts. Inflation in America is currently at a four-decade high and the Fed is determined to bring it under control. Last month in June 2022, the Fed announced a 75 basis point hike in interest rates. It has hinted at more rate hikes if inflationary pressure continues.
Thus, the equity market is trying to adjust to the new reality where the Fed is trying to control inflation while risking growth. On the other hand, the sharp surge in bond yields has sent tech stock tumbling down. Investors have been moving money out of growth-oriented assets and parking it into stable assets.
Tech stocks have seen massive corrections so far in 2022. Giants like Alphabet (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL) have also corrected 24% each. On the other hand, Facebook-parent Meta Platforms (NASDAQ: FB) has corrected 52% while Netflix Inc (NASDAQ: NFLX) has corrected more than 71%.
Economy and Stock Market
As said, the US economy is red hot when it comes to inflationary pressures building up. On Thursday, the Commerce Department reported that the core personal consumption expenditures price index jumped 4.7% in May. This is currently at levels last seen in the 1980s.
Similarly, Chicago PMI, which tracks business activity in the region, stood at 56 for the month of June. With these economic concerns looming around, the Fed is likely to take aggressive measures going ahead. However, the fear is will the Fed measures of interest rate hikes lead to a recession.
Many analysts believe that recession is likely to hit America in the next 12-18 months. Thus, some believe that the market has yet to bottom from the current levels. George Ball, chairman of Sanders Morris Harris said:
“We do not believe the stock market has bottomed yet and we see further downside ahead. Investors should be holding elevated levels of cash right now. We see the S&P 500 bottoming at around 3,100, as the Federal Reserve’s aggressive, but necessary inflation-fighting measures are likely to depress corporate earnings and push stocks lower.”
Some analysts believe that inflation is likely to remain sticky and will continue to persist longer than expected.