After rallying an impressive 26.9% in 2021 the S&P 500 entered 2022 on an even more bullish note, hitting a record high of 4,818.62 on January 4. The outlook for the remainder of the year was solid, with analysts expecting the index would extend its rally, ending the year at 5,225, for a one-year increase of 9.6%.
It doesn’t appear as though the S&P 500 is going to hit that target. It just posted its worst half-year since 1970.
How Did the S&P 500 Do in the First Half of 2022?
In the first six months of 2022 the S&P 500 cratered 20.6% as investors digested fears of soaring inflation and rising interest rates that could tip the U.S. into a recession. It’s already halfway there, with the U.S. economy shrinking 1.6% in the first quarter. The definition of a recession is two consecutive quarters of contraction.
The year-to-date loss of 20.6% represents the fourth-worst first half-year performance on record, trailing only 1932, 1962, and 1970, when it lost 45.4%, 23.5%, and 21.0%. respectively.
With investor sentiment at its lowest level in 30 years there are concerns the S&P 500 could fall even further. There is light at the end of the tunnel, though. Of the 12 bear markets since World War II (excluding this one), they lasted, on average, 10 months, from the market peak to trough. During that period, the average drop was 34%.
If this bear market follows historical trends, it would bottom in October. At the same time, when stocks do finally rebound, the market tends to perform the best when investors are the gloomiest.
How Is the TSX Doing?
The mood was slightly different when it comes to the TSX, which ended the first half of the year down 10%. In the second quarter, the Canadian benchmark recorded its sharpest quarterly decline since the first quarter of 2020.
The resource-heavy TSX started the back half of 2022 on an upbeat note on rising oil prices. Save for technology stocks, all of the major sub-sectors on the TSX rose on the first day of trading in July.
Energy stocks have been reporting record profits on the backs of rising oil prices. But those big gains could cool as concerns of a recession could drag down demand, curtail oil prices, and cut into earnings.
The S&P 500’s energy sector gained 28% in the first half of 2022 while the TSX’s energy advanced a more impressive 34.8%.
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Decades-high inflation, rising interest rates, concerns about a recession, geopolitical tensions, and lingering concerns about COVID-19 weighed down on stocks in 2022, with the S&P 500 recording its worst first half of the year since 1970 and the TSX coming off its worst quarter since the start of 2020.
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