In Review

Both global equity and fixed income markets continued this year’s selloff in the 2^nd quarter as investors grappled with slowing economic growth, geopolitical turmoil, and rapidly tightening financial conditions. Broadly, U.S. equities declined -16.1% in the 2nd quarter. Year-to-date, U.S. equities were down roughly 21% marking the worst 1^st half of a calendar year since 1970. The Bloomberg Global Aggregate Index fell an additional -8.3% in the 2nd quarter, bringing the year-to-date return to -13.9%. Fixed income markets continue to be hit by both surging yields and widening credit spreads due to expectations for further rate increases and concerns over the global growth outlook. International developed equities slid -20.3% in the 1st half of the year as Europe teeters on the brink of an energy crisis due to the conflict in Ukraine. Investors remain laser-focused on the Federal Reserve as the inflation picture has put them in the undesirable position of having to aggressively hike rates in a slowing growth environment. However, we continue to see signs of meaningful easing in core inflation that may provide some latitude for the Fed to tone down their currently hawkish rhetoric. In that case, investor attention will likely shift in the 2^nd half of the year to the economic growth outlook and its implication for corporate earnings. Earnings have been resilient this year, but anecdotal evidence of inventory gluts and hiring freezes are likely to dent earnings growth expectations. Elevated uncertainty will likely create an environment of sustained equity market volatility until there’s more clarity on the path forward for inflation, economic growth, and corporate earnings.

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