Worst Start to a Half in Over 50 Years
With the first six months of the year in the books, U.S. equities capped their worst first half of a year since 1970. U.S equities ended the month of June on a low note, bringing to an end a volatile first half of the year that saw the benchmark S&P 500 fall -20.0% to close at 3,785. US Mid- and Small-Caps performed roughly in line with Large-Caps, down -19.6% and -19.0%, respectively. From an international standpoint, both Developed Markets (DM) and Emerging Markets (EM) equities posted similar declines, down -19.2% and -17.6%, respectively. Global equity markets have largely been indiscriminant in their selling, with US Large-, Mid-, and Small-Caps all performing roughly in line with DM and EM benchmarks. Bonds provided minimal hedge value, with the Bloomberg Aggregate shedding -10.4% as the Federal Reserve raised interest rates to combat inflation. Commodities finished the first half of the year in positive territory, with the Bloomberg Commodities Index gaining +18.0%. Within the index, Gold remained largely flat, up a scant +0.3%, while West Texas Intermediate (WTI) crude oil was the standout up +39.0%.
From a style perspective, Growth stocks, as measured by the S&P 500 Growth Index, closed out a difficult first half of the year with a -27.6% drop. On the other hand, Value stocks, as measured by the S&P 500 Value Index, lost -11.41% year to date, a more than 16 percentage point outperformance compared to Growth.
At the regional level, the Eurozone, as measured by the MSCI EMU Index, is down -18.11%, despite the geopolitical headwinds facing the bloc. Additional new headwinds likely remain, including French President Macron losing a majority of parliament, a hawkish European Central Bank (ECB) contending with rising bond yields in Italy, and the unforeseeable consequences of both Sweden and Finland joining NATO. With inflation accelerating and energy prices surging, the Eurozone’s headwinds are perhaps a bit different than those in the U.S. due to the lack of available tools to combat them. As we go to press, the Euro has fallen to parity with the Dollar for the first time in over 20 years, which is welcome news to US vacationers, but a new headache for Eurozone countries trying to fight inflation as a weaker currency adds fuel to the fire.
Within EM, China was a notable standout, falling only -10.61% on the year. Last month’s performance helped tremendously, with the MSCI China Index gaining +6.66%. June marked the end of Shanghai’s two-month lockdown, relaxed travelling restrictions, the re-opening of Shanghai Disney, and a visit from President Xi to Hong Kong. While anecdotal, all point to a relaxing of COVID-19 restrictions, even though not an outright end to “Zero Covid” policy. While not without their own unique risks, Chinese equities are becoming more attractive on a relative basis as additional stimulus measures are embraced, whereas most of the rest of the world is tightening monetary conditions.
Matthew Krajna, CFA
Co-Chief Investment Officer
Matthew joined Nottingham in 2012 and is a member of the Investment Policy Committee. Matthew is responsible for conducting investment research, due diligence, and contributing to Nottingham Advisors overall investment strategy. Additionally, He is responsible for establishing the firm’s strategic and tactical asset allocations. Matthew works with investment advisors and both individual clients & institutions to help build customized investment solutions to fit their needs.
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