Wall Street Breakfast: Halftime

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Wall Street Breakfast: Halftime
Wall Street Breakfast: Halftime

Investors are proceeding into the second half of 2022 with caution after the worst first six months to a year in decades. Risk-off sentiment was seen in most areas of the market, fueled by soaring inflation and the Fed’s aggressive monetary policy to fears of slowing growth and increased borrowing costs.

 

A much hoped-for “soft landing” also hit some turbulence, with Fed Chair Jay Powell remarking this week “there is no guarantee that we can do that and it’s obviously something that’s going to be quite challenging.”

 

Perfect storm: The S&P 500 (SP500) has plunged 21% since January, losing more than $9T in market capitalization and suffering its worst first half of a year since 1970, while the Nasdaq Composite (COMP.IND) and Dow Jones (DJI) fell 16% and 30%, respectively.

 

The 10-year Treasury yield climbed from 1.50% to around 3.00%, and Bitcoin (BTC-USD) has tumbled nearly 56% YTD to under $20,000. One of the only pockets of the market that gained in the first-half was commodities, with crude oil going from $75 to well over $100 a barrel and U.S. gas prices nearly tripling before falling back in recent weeks.

Heading into H2, many are worried that central bank actions could push the global economy into a downward spiral. The latest reading from the Atlanta Fed’s GDPNow tracker is now in negative territory, predicting Q2 real GDP growth of -1.0% as of June 30, down from +0.3% on June 27. If that print comes to fruition, it would mark two straight quarters of negative real GDP growth (-1.6% in Q1) making it a technical recession.

 

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More volatility ahead? Earnings season, which kicks off later this month, could present the next trading risk, though you never know when buy-the-dip institutional managers and retail investors will step in and gain control of the markets. “If we have any words of comfort, it is that universal losses at this pace rarely take place in successive quarters, but this is not the same as saying that further losses should not be anticipated,” said Michael Shaoul, CEO of Marketfield Asset Management.

 

“This still very much looks to be the middle of the story, the period in which a previously ‘pacific’ outlook is replaced by something far stormier, and we are yet to see any signs that the weather is about to turn for the better.”