Welcome to our 2022 Halftime Report! The goal of this 4-part report is to help you better understand what happened in the markets in the first half of 2022 and what may unfold in the months ahead. In this report, we'll cover a review of the first half of the year, a closer look at what drove U.S. equity market performance, and a second-half outlook. In this post, we’re going to take a closer look at some key developments that drove U.S. equity market performance in the first half.
Let’s begin by reviewing how the stock market performed during the first half of 2022.
U.S. Market Review
Above is a snapshot of the S&P 500 Index performance from December 31, 2021, to June 30, 2022. The S&P 500 Composite Index is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. And the return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.
The S&P 500 fell steadily throughout the course of the first six months of the year as economic growth cooled, inflation picked up, and the Fed began a pivot to a tighter monetary policy.
As you can see from the milestones marked on the chart, investor enthusiasm was dampened in January as the Consumer Price Index came in at 7%. Fed Chair Jerome Powell surprised markets later that month with talk of shrinking the Fed’s balance sheet. And in late February, the market learned about the invasion of Russian troops into Ukraine.
On March 16, the Fed implemented its first rate hike. A short time later, we learned that inflation was hitting a 40-year high. The negative sentiment gathered momentum in April and May when the Fed raised rates again, this time by 50 basis points.
Markets continued their struggles in June as recession fears grew and May’s CPI release showed inflation had reached a 40-year high. In response to this elevated inflation and rising inflation expectation, the Fed hiked interest rates by 75 basis points in mid-June.
2022 Forecast: S&P 500
So, we’ve talked a bit about how the S&P 500 performed so far this year. But how does that performance compare to expectations?
At the end of each year, various media outlets compile some Wall Street analysts’ predictions for the year ahead. This image shows several projections shared at the end of 2021.
How do those predictions compare to reality so far? From the previous slide, we can see that the S&P 500 closed in June 30, 2022 at 3,785.
The S&P 500 closed at 4,766 on December 31, 2021. The forecasts for 2022 were very modest, as the table suggests. Even the most optimistic forecast in this table represents a less than 10% increase for the year. The outlook was reflective of expectations that economic growth would moderate while interest rates would likely be heading higher.
Predicting where the S&P 500 will be by the end of the year is always challenging, especially in 2022 given the uncertainties of inflation, global economic growth, and rising interest rates.
It’s worth repeating that the S&P 500 Composite Index is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. And the return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.
Next up, we'll take a look at what drove U.S. equity market performance. If you have any questions about our Halftime Report, please contact us to discuss.