Macro and Market

Quarterly Performance Update

Inflation, Rising Rates Hampered Stock and Bond Returns
JUN 30 | 2022
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Second Quarter 2022

Mounting challenges and uncertainties led to widespread declines for global stocks and bonds in the second quarter. Still-soaring inflation, rising interest rates and growing recession fears weighed on most asset classes.

U.S. Stocks

Following a first-quarter loss of nearly 5%, the S&P 500® Index tumbled into bear-market territory in the second quarter, declining 16% for the three-month period. With a year-to-date total return of -20%, the index suffered its worst first-half performance since 1970. Persistently high inflation, ongoing supply chain disruptions, rising interest rates and aggressive Federal Reserve (Fed) tightening contributed to record-low consumer confidence and waning business confidence. Additionally, second-quarter corporate earnings growth outlooks slowed. These influences, combined with the economy shrinking 1.6% in the first quarter, fueled recession fears. Meanwhile, the labor market remained a bright spot, as jobs growth was healthy, and the unemployment rate held steady at 3.6%.

International Stocks

Non-U.S. developed markets stocks declined for the quarter but fared slightly better than U.S. stocks with a return of -15% (MSCI World Ex-USA Index). Record-high inflation, soaring energy costs and slowing economic growth weighed on European stocks. U.K. inflation climbed to a 40-year high of 9.1%, which contributed to weaker growth and corporate profit outlooks. The Bank of England lifted rates in June for the fifth time since December. Elsewhere, emerging markets stocks declined amid geopolitical unrest, supply chain bottlenecks, higher global interest rates and lingering COVID-19 challenges. Nevertheless, with a return of -11% (MSCI Emerging Markets Net Index), emerging market stocks outperformed developed markets stocks, largely due to gains in China.

Global Bonds

Amid still-rising inflation and tighter central bank policy, global bond yields generally climbed higher and bond returns sank. In the U.S., annual headline inflation soared to 8.6%, a 41-year high. This prompted the Fed to lift rates 50 basis points (bps) in May and 75 bps in June. The hike in June marked the largest Fed rate increase in 28 years. Similarly, the Bank of England continued to raise rates to tame a 40-year-high inflation rate. Despite record-high inflation in the eurozone, the European Central Bank kept its support programs intact. Policymakers indicated they would end their bond-purchase program and consider hiking rates in July. The Bloomberg U.S. Aggregate Bond Index returned -5%, while global bonds returned -8%. Elsewhere, rising rates, a stronger U.S. dollar and geopolitical tensions led to steep declines for emerging markets bonds.

Q2 2022 Performance Update

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