June stock market results bring on the worst first-half year in more than 50 years

The broad stock market dropped 8.3% and recorded the second worst monthly decline so far this year  

Against a backdrop of high inflation expectations, rising interest rates, slowing growth and the prospects for reduced corporate earnings, the broad stock market dropped 8.3% and recorded the second worst monthly decline so far this year.  The S&P 500 registered 13 down trading days during the month, or just about 60% of the trading days.  Seven trading days exceeded 1% declines, including five declines over 2%.  The market rebounded by 1.06% on the last trading day of the month, but not nearly enough to salvage June’s results that also weighed on the quarter and year-to-date returns.  Refer to Chart 1.  The broad market gave up 16.1% in the second quarter and 20% on a year-to-date basis.  This was the worst first half-year for the market in more than 50 years and, according to history, this may not be the end of it as the typical bear market, according to Barron’s, lasts about 10 months with an average drop of 34%.  So further declines may be on the horizon.  That said, this bear market has its origins in the COVID pandemic and Russia’s invasion of the Ukraine which may introduce new variables that are difficult to model and forecast with any level of precision.  Except for small cap stocks, value outperformed growth stocks in June while large cap stocks outperformed mid and small caps. All eleven large cap sectors underperformed in June while energy is the only sector that recorded a year-to-date gain, a very substantial increase of 31.8%.

The commodity sector also posted significant declines, as high as a drop of 33.5% sustained by natural gas, and only live cattle recorded an increase of 1.8%.  But commodities were eclipsed by the collapse of cryptocurrencies that experienced declines of 38.45% for Bitcoin and 45.51% for Ether.

Outside the US, the MSCI ACWI, ex USA Index also ended lower in June along with MSCI EAFE and MSCI Emerging Markets indices, each of which gave up 8.6%, 9.3% and 6.6%, respectively.  For the six months, these same indices dropped -18.2%, -19.6% and -17.5%, in that order.

After a rapid rise since the start of the year, the yield on 10-year Treasuries posted a retreat from 3.49% reached on June 14th to drop below 3% at month-end.  Against a backdrop of declines in government and corporate bond prices as markets moved to price in significant further increases in interest rates on top of what has already been announced, the Bloomberg US Aggregate Bond Index gave up 1.57% in June and -4.69% in the second quarter.