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Brutal first half of 22 on track to cut $8 trillion from S&P 500

Sharp losses in stocks and bonds, dizzying market swings and a Federal Reserve determined to rein in the worst inflation in more than forty years were among the hallmarks of US markets in the first half of 2022.

On Wednesday, the S&P 500 .SPX is on track to end the first six months of 2022 with a 20% loss, losing some $8.2 trillion in market value as the index heads for its biggest drop ever. in the first half since 1970.

Earlier this month, the index confirmed the common definition of a bear market by closing more than 20% from its record high in January.

Bonds have fared little better, with the ICE BofA Treasury index .MERG0Q0 falling nearly 10% this year, on pace with its worst year in index history dating back to 1997.

For now, investors see little respite from the turmoil that has rocked markets in recent months, fearing that the Fed’s fight against inflation could further dry up risk appetite while potentially plunging the US economy in recession.

The month ahead will bring another round of corporate earnings, the latest inflation data and culminate with a Fed meeting, leaving plenty of opportunities for markets to build on a nascent rally in equities that started on the mid-June or to look for new lows.

Soaring inflation forced the Fed to raise rates quickly in the first half of the year, reversing the accommodative monetary policy that helped the S&P 500 more than double from its March 2020 lows.

The fall in the index brought down many of the high-growth stocks that have flourished in recent years. Cathie Wood’s ARK Innovation ETF ARKK.P, which holds post-pandemic favorites such as Zoom Video Communications ZM.O, Teladoc Health Inc TDOC.N and Roku Inc ROKU.O, is down 57% from a year to year. -Date.

The fall in stocks has also put a strain on the popular buy stocks on weakness strategy, which has rewarded investors for most of the past decade but failed this year amid the S&P’s decline. . The benchmark has seen three rebounds of at least 6% this year that have reversed to fall below its previous low point. The latest rebound has lifted the index about 3% since its low in mid-June.

Another popular approach that has suffered this year is the so-called 60/40 portfolio, where investors rely on a mix of stocks and bonds to protect against market declines, with stocks rising amid rising economic optimism and bonds strengthening in turbulent times.

This strategy went awry in 2022 as expectations of a hawkish Fed weighed on both asset classes. The BlackRock 60/40 Target Allocation fund is down 16% year-to-date, its worst performance since its launch in 2006.

The first half of the year saw volatility return to global financial markets dramatically, with stocks, bonds and currencies all rocked by central bank moves as well as rising geopolitical tensions.

But while the Cboe Volatility Index .VIX, or “Wall Street Fear Indicator”, remained high throughout the year, it failed to close higher than 37, the average level. which marked the latest lows in the market. This has led some investors to fear that the sale will go through.

Few believe wild market swings will subside until there is evidence that inflation is easing, allowing the Fed to slow or stop tightening monetary policy. For now, warnings of an impending recession have intensified on Wall Street as the effects of rising rates seep into the economy.

The Citigroup US Economic Surprise Index, which tracks where a core set of economic data has come in relative to expectations, shows incoming data missing estimates by the widest margin for about two years.
Source: Reuters (Reporting by Saqib Iqbal Ahmed; Writing and additional reporting by Ira Iosebashvili Editing by Nick Zieminski)