With five weeks left, in what has been a roller coaster of a year for financial markets, deadlines are quickly approaching to implement strategies for 2022 to reduce your income tax liability. Further, the market has also presented new opportunities to structure portfolios for tax-efficiency as we head into 2023. Click here to read where we have outlined a few planning thoughts.
After the worst first half since 1970, the third quarter started out with a bang as the S&P 500 increased over 17% from June lows. However, elevated inflation reports coupled with a Fed determined to squash it, led the market to give up all its gains and then some, ending the quarter at the lows for the year (-23.9%). This was the worst first three quarters to start a year since 2002, and the fourth worst since 1926. International markets performed even worse, and bonds continued their plunge with a 15% total decline year-to-date.
There is generally only one free lunch in the investment world and that is diversification. Unfortunately, plain vanilla diversification has not worked this year as both stocks and bonds have seen historic declines. The S&P 500 posted the worst first half since 1970 (down 20%), and the 4th worst start to the year (1932 & 1962) in history. Bonds, most investors safe investment, were down 10.4%, the largest decline to start a year since data began being tracked in 1981.
We hope everyone and their families are healthy and safe and enjoying the start to summer. The first half of 2022 has certainly been a rough start to the year for both markets and the global economy: facing headwinds from an ongoing war in Ukraine/Russia, high and unpredictable inflation, rising interest rates and continued supply chain disruptions. While it was our belief that markets were due for a pullback and the confluence of these issues would result in a volatile market, we did not expect for it to happen this broadly and quickly.
After a year in which the S&P 500 advanced by more than 28%, the first quarter saw major volatility with the S&P 500 ending the first quarter of 2022 down 4.6%. At the lowest point, the 500 largest companies were down 12.5% on March 8th, but rallied nicely through the end of the month. Growth stocks were particularly hard hit with the Nasdaq down over 20% at its low. The first Fed rate hike since 2018, the biggest conflict in Europe since WWII and the highest level of inflation in 40 years all weighed on investor confidence.