How Bad Was The First Half Of 2022?

How Bad Was The First Half Of 2022?

Pretty bad. I’m not referring to the war in Ukraine, or the surge in COVID infections, or supply chain disruptions, or the growing number of gun deaths in the U.S. I’m talking of course about the capital markets.

The negative 21% performance of the S&P 500 during the six-month period ending on June 30th ranks among the worst six-month drops going back almost a century. Only 2008, the 2001 dot-com bubble crash, World War II, and the depression years saw bigger six-month losses. 

As if that weren’t bad enough, bond market performance was even more painful, relatively speaking. Five-year treasuries were down 6.4%, their third worst six-month return ever. (And the second worst was the six-month period ending in May, just one month earlier). Intermediate-term corporates lost over ten percent.

The combination of historically extreme negative returns for the two largest asset classes caused virtually all investors to suffer over the first half of this year. Over 98% of all six-month periods since 1926 provided better returns than a diversified portfolio in 2022.

Is there any good news? If you’re still employed and saving some of your earnings, you’ll be buying more stocks, bonds, and funds at lower prices. This is the time when dollar cost averaging works very well. And if you’ve been invested for the last five or ten years your portfolio should still be considerably bigger than it was when you started.

It is not possible to reap the benefits of investing in anything that involves risk (stocks, bonds, real estate, commodities, artwork, whatever) without experiencing price drops periodically. But it’s those very declines that set the stage for subsequent rallies. And according to Ben Carlson at Ritholtz Wealth Management, stock market returns since 1928 during periods of falling inflation have been more than double returns when inflation has been rising (16.5% vs. 7.1%). If inflation can be tamed within the next year then we could have two things to look forward to: stable prices plus expanding investment portfolios. Stay tuned!

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