NEW YORK: With US stocks marking the worst first half of the year in more than 50 years, investors are studying a number of metrics to determine whether the coming months could bring relief, or more.

Either way, the first half of 2022 has been challenging for investors. The S&P 500 is down nearly 18% year-over-year, according to the S&P Dow Jones Index, on track for its worst first half of any year since 1970, as the Fed continues to fight monetary gains in its fight against the highest inflation in decades. strengthens the policy.

Bonds, which investors typically count on to offset declines in stocks in their portfolios, have performed slightly better: the US bond market, as measured by the Vanguard Total Bond Market Index Fund, is down 10.8% to date. Yes, keeps it on pace. For its worst performance in modern history.

With investor expectations fluctuating between continued high inflation and an economic downturn caused by a hawkish Fed, some believe the market volatility will end anytime soon.

“We do not expect the volatility and volatility we saw in the first half of the year to decrease,” said Timothy Broad, global head of OCIO. Goldman Sachs Asset Management,

Gain after pain?
Historical data may paint a mixed picture of the trajectory markets in the coming months. On the one hand, sharp declines in stocks are often followed by sharp rebounds: Previous years when the S&P 500 was down at least 15% at the midway point have seen highs with average returns of about 24 percent each time the past six months was. %, according to the figures of LPL Financial On the downturn in the market since 1932.

The S&P 500 rallied more than 3% on Friday for its biggest one-day percentage increase since May 2020, as signs of slowing economic growth prompted investors to dial back expectations about how high federal Reserve To curb inflation, interest rates will increase for the week, the index is up 6.4%.

One factor that could sustain that rally in the short term is quarter-end rebalancing, as institutional investors such as pension funds and sovereign wealth funds draw on record cash levels to bring back allocations to stocks in line with their goals.

JPMorgan analyst Marko Kolanovic said in a note on Friday that the event could push markets up as much as 7% next week.

Meanwhile, many so-called contrarian indicators tracked by analysts BofA Global ResearchBank analysts said in a note that buying signals are visible, including cash allocation and investor sentiment.

Jack Jansiewicz, Principal Portfolio Strategist and Portfolio Manager, Natixis Investment Managers Solutions, believes the second half of the year is likely to be better than the first. He’s growing more bullish on equities, especially stocks of beaten-down big tech companies with strong balance sheets, such as Google-parent Alphabet Inc.

“There’s a lot of bad news in price on the economy,” he said. “We think the risk is upside down.”

However, investors holding out for the final change may be in for a stomach-churning ride.

A study of bear markets over the past 150 years by Solomon Tadesse, Head of North American Quant Strategies at Société Generale, showed that stocks tend to go down after correcting the “excesses” of previous bullish periods. According to his research, the S&P 500 will fall another 22% to 3,020, which measures the percentage declines during past crises of similar magnitude.

The sell-off in the market is “an inevitable necessary correction of post-Covid excesses,” he said, describing a stimulus-fueled rally that saw the S&P 500 more than double from its March 2020 lows.

Doubts about the stability of the market rally extend to individual investors as well. a survey by American Association of Individual Investors The week ended June 22 found that 59.3% believe the US stock market will be bearish over the next six months.

Brian Jacobsen, senior investment strategist at AllSpring Global Investments, believes the recent decline in bond yields could help mitigate volatility in markets, in sectors such as emerging market equities and short-term high-yield bonds. provide opportunities.

However, for the time being he is cautious about the US stock market.

“From an area standpoint, nothing screams safe,” he said.

Meanwhile, the brood of Goldman Sachs believes inflation concerns and higher commodity prices could make the second half of the year as volatile as ever.

“There is a downside risk in the stock and bond markets,” he said. “Cash is king in such an environment.”