Fall is here, the leaves are changing, the temperatures are falling and Halloween is around the corner. Unfortunately, the markets pre-empted Halloween’s arrival with their own ‘frightful’ performance.
To start the third quarter, stocks rose 13% from July 1 until mid-August. Then, the Consumer Price Index came in higher than expected and the Federal Reserve telegraphed aggressive interest rate hikes ahead. Fearful of a looming severe recession, the S&P 500 finished the quarter down 4.9% and down 23.9% year to date.
More broadly speaking, nearly all equity assets are down so far in 2022 – value, growth, large, medium, small, international, emerging. Of the various equity sectors: utilities, staples, healthcare, financials, etc., energy is the only sector that is positive for 2022. A rare occurrence.
Finally, the bond market has been ‘scary’ as well. In a highly unusual circumstance, bond returns are down as well in 2022. Short term US government bonds are down 4.5% while the most common broad based industry benchmark, the Bloomberg Aggregate is down 14.6%. An even more rare occurrence.
All that being said, there is reason for the contrarian to be optimistic. Consumer sentiment and market sentiment is dismal. These levels of fear and uncertainty are very close to the lows of both the COVID outbreak and the 2009 Global Financial Crisis. These depressed levels of sentiment have been a major buy signal historically. Of course, this time may be different, but it warrants a conversation.
We close our comments with a quote from Mellody Hobson, President and Co-CEO of Ariel Investments:
“The biggest risk of all is not taking one.”
We appreciate your thoughts, comments and questions so please contact us anytime.
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