It has been a challenging year so far. The S&P 500 Index started 2022 with its worst 6 months of a calendar year since 1970. There is no shortage of bearish headlines. Some of the smartest investors out there are urging caution and calling for recession (though Warren Buffett has been buying). The anxiety among investors is understandable given stock market losses, sky-high inflation, and rising recession risk. Consumer buying power is being eroded by sharply higher prices. It’s tough out there.
Adding to the wall of worry is the Fed’s history of fighting inflation without causing a recession is not good. Nonetheless, high inflation has been a common ingredient in recessions since WWII—see the 1970s, early 1980s, early 1990s, and even 2008. Simply put, the Fed is fighting an uphill battle.
With the conclusion of the 4th of July, we must keep in mind our country is and will always be resilient.
Corporate earnings continue to grow. With the new regulations enacted after the Financial Crisis of 2008-2009, banks are better capitalized. U.S. households held $3.2 trillion more in checkable deposits on March 31, 2022, than at the end of 2019 before the pandemic. There are over 11 million job openings in the U.S. compared with 6 million unemployed people.1
Inflation pressures should likely ease. It’s fair to say a healthy amount of change must occur for that to happen, including easing of supply chain disruptions, more workers entering the labor force, and a cease-fire in Ukraine. However, we see meaningful progress on these fronts over the next six months is more likely than not.
In the past 30 years, we’ve seen 3 bear markets and events such as the late 1990’s technology bubble, 9/11, the Financial Crisis of 2008-2009, and the 2020 COVID-19 pandemic. In these same 30 years, the S&P 500 Index has returned approximately 9.8% annually.2
We need to remember that these events are part of the markets and economic cycles. We’ve been through times like this before and unfortunately, we believe this will not be the last bear market either. However, when we go through these difficult times, we become better investors.
Thank you for your continued business and confidence.
- LPL Research, Weekly Market Commentary – 07/05/2022
- Morningstar Research, 06/30/1992 to 06/30/2022