TrustWell’s Quarterly Market Review: Q2 2022

By Brett Freese

Market Highlights:

• Worst first half of a year for investors since 1970.  1970???  I was born in August of that year. Therefore, I am rooting for a big turn around soon, give my mother a kiss, a big hug and a grateful thank you.  Let’s get back to making money in this market again.
• The major stock and bond indices were all down this past quarter (see “Market Scorecard” below).
• Even gold and other commodities were down this past quarter.  Gold was down 6.50% price per ounce and the broad basket of commodities was down 0.57% for the last 90 days.  One of the exceptions was Oil which was up approximately 5.46%.
• Bitcoin was down 57.93% for the quarter

Economic Notes:  Starting with bad news and ending with some good news.

• The world’s developed economies are still in a balancing act in wanting economic growth to continue with healthy employment numbers while struggling to reduce inflation and supply chain issues.
• With the exception of China and somewhat Japan, the rest of the developed world is aggressively raising rates and reducing liquidity.
• China continues to go through major growing pains as it struggles to manage a dictator-imposed communism vs the prosperity and trust of a capitalistic middle and upper class.  China’s failed no-COVID policy has greatly handcuffed China and the rest of the world.
• With the exception of very, very few asset classes the pain of inflation, supply issues, war, failed government policies in the US, Europe China, and in many other countries has hit us all hard this whole year.
• The Federal Reserve moved the Federal Funds rate target range to 1.50 – 1.75%, they have stopped their bond purchases and there is an expectation by the markets for a .50 to .75% rise in July and a raise of .25 to .75% in September 2022.  Note: The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment.
• Inflation is very high and there is little debate over whether this a transitory concern or a longer-term issue.   This is the main concern for the Fed now with employment at record highs.
• The unprecedented spending in Washington will have long lasting effects on the borrowing cost of the US Government especially with interest rates going up.
• As we continue to pray for people in regards to the events in Ukraine, there are short-term and long-term political and economic concerns to continue to watch.  I am very concerned about an even more increasing hunger issues in Africa and other food challenged areas of the world.
• 2022 is an Election Year.   100% of the House of representatives and 33% of the Senate is up for election.  This will clearly impact the priorities and positioning of our Washington representatives.
• Good News:
  • Bear Markets and recessions are normative.  I was reminded by a friend recently that the average bear market goes down approximately 25% but the average bull goes up approximately 100% and much of that bull market is right at the end of a bear/beginning of a bull.  The challenge is that we don’t know when that is until months after it already happened.
  • The US Large Corporations still are producing strong revenue and profits, equity capital (cash on the balance sheet) has never been greater, and leverage (debt) is below a 2+ decade average.
  • From challenging times come most of the new innovations, greater efficiencies, stronger team work, and fantastic investment opportunities. 
  • Many of those opportunities come as news, data, asset prices, and feelings get worse.

Historical Stock Market Declines:

Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.

A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years

Please know that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.

Market Scorecard for the last 13 weeks ending 06/30/2022:

US Equities:

– 16.10%                  S&P 500 (Index of the largest US publicly traded companies)

– 19.08%                   Russell 2000 (Index of 2000 Small-cap US publicly traded companies)

Global Equities:

 – 13.91%                  Foreign Large – Morningstar Category

 – 20.11%                  Foreign Small/Mid Stock – Morningstar Category

US Bonds:

– 7.18%                   Corporate Bond – Morningstar Category

– 1.14%                   Short Government – Morningstar Category

– 2.97%                  Muni National Bond Index – Morningstar Category

Other:

-5.61%                    Global Bond – Morningstar Category

-6.50%                    LBMA Gold Price

-57.93%                  Bitcoin

-0.57%                    Commodities Broad Basket – Morningstar Category

Market Indicators:

Inflation:
8.58% as of 6/15/22  (Up 0.71% from 7.87% in March 2022)

Unemployment: 
3.6% as of 06/3/22  (Down from 3.80% in February 2022)

Fed Funds Target Rate:
1.50-1.75% as of 06/28/22  (Up from 3/29/22 of 0.25 – 0.50%)

Suggested Next Steps:

• Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. The ups and downs of investments many times seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
• Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
• Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor(s).