Midyear Market Review

BY STEVE DINNEN

As investments go, 2022 year-to-date performance has been one for the record books. The Dow Jones Industrial Average is down around 13%, while the S&P 500 is off 18%. The Nasdaq composite is in even worse shape, off nearly 26% and deep into bear territory.

And as Mark Peterson (pictured), director of investment strategy and education at Blackrock Inc., noted, bonds are off to their worst start ever. Stocks are off to their fifth-worst start in history. To have both bonds and stocks in negative territory is a rare event: It last happened in 1969.

In a midyear review of the market that he presented at Gilbert & Cook, a West Des Moines-based financial planning firm, Peterson took note of several factors that have converged to stymie the markets. Inflation, market volatility, fears of recession. Russia did not help, with its invasion of Ukraine and subsequent upending of global energy and grain markets. And of course there still are supply chain problems.

This has created an enormous amount of volatility. Market swings of plus or minus 2% are big moves, and in 2021 we witnessed them seven times. (We went 680 days – nearly two years – without a 2% swing in 2004-05.) And now we’ve seen at least 15 since the end of April.

The Fed's lift of short-term interest rates has likely had the most impact on volatility, Peterson said. There is a concern that the Fed will raise interest rates too high, too fast. But Peterson, whose firm is the world’s largest asset manager, said he does not think that will be the case.

“We don’t believe the Fed will raise interest rates as much as the economy is expecting,” he said. (But stay tuned to news out of the July 26-27 meeting of the Federal Open Market Committee; Fed Chairman Jerome Powell has already warned that another boost is due and 0.5-0.75% is not outside the realm of possibilities.)

So how do we move forward in the second half of 2022 and into 2023? Stocks don’t seem to have a compelling story. Ditto for bonds. And cash has lost its luster as a safe harbor.

“Cash is losing to inflation like it hasn’t done in 70 years,” Peterson said. “It can feel like it’s just a terrible time for the market.”

This is where the power of a well-diversified portfolio comes into play. Stay the course. Tweak if need be. And try your best to ignore the froth of the market. As Peterson noted, of 26 days of 2% market swings he witnessed in 2022, 14 of them were negative – but 12 were positive.

Real-Time Model of Economic Activity Turns Negative

BY STEVE DINNEN

Is a recession looming, or is it already upon us? Yes, recessions happen before people know it as they are called only after a lot of economic data is analyzed by the National Bureau of Economic Research. But the Atlanta Federal Reserve Bank has crafted what is known as the GDPNow gauge, a real-time model that is used to track economic activity.

At the close of the second quarter, on June 30, GDPNow turned negative. It showed a 1% decline in economic activity. Since GDP in the first quarter contracted 1.6%, that meant two consecutive quarters of negative growth. And that, ladies and gentlemen, is the classic definition of a recession.

As inflation hit a 40-year high in May, the Federal Reserve hiked interest rates and they may have slowed economic activity just enough to produce that negative growth. Fed Chairman Jerome Powell acknowledged the possibility of this occurring, but since its job is to fight inflation, it acted to get ahead of the situation. The Fed has raised interest rates three times this year, including a 0.75 percentage point boost – the biggest in 26 years – in mid-June.

The Fed does not declare a recession. That’s the job of NBER, a nongovernmental organization.

Investment Strategies to Help Minimize Uncertainty

BY LORIE KONISH FOR CNBC.COM

It’s no secret that the first half of 2022 has ushered in a lot of expensive changes for consumers:

The S&P 500 Index fell 20.6% in the largest first-half decline since 1970, pulling down investors’ portfolios with it.
The Federal Reserve in June approved a 75 basis point rate hike in the biggest move since 1994, making it pricier to borrow.
Meanwhile, newly released June data shows inflation was hotter than expected, with a 9.1% year-over-year jump in the fastest pace since 1981 — meaning many of the products and services people buy are more expensive.

As we head into the second half of the year, many investors may be wondering, “What’s next?”

“It kind of feels like there’s no good move to make,” said Dan Egan, vice president of behavioral finance and investing at Betterment. “We’re really hitting an interesting ‘how good do people feel’ turning point.”

The good news is we may be underestimating our ability to adjust, according to Michael Liersch, who holds a Ph.D. in behavioral science and serves head of advice and planning for Wells Fargo Wealth and Investment Management. READ MORE.

How Does Inflation Affect Your Retirement Plans?

BY CHRIS CAROSA FOR FORBES.COM

With prices rising at a record rate, many retirees or people planning to retire soon may be increasingly worried about what sort of lifestyle they can afford.

The good news is that the headline inflation number of 9.1% from the Bureau of Labor Statistics represents an average rise in consumer prices. Your own inflation rate may be different depending on what you buy and where you buy it.

“Inflation is represented as a single number, but in reality, it affects everyone differently depending on how they spend their money,” says Brian Walsh, Senior Manager of Financial Planning at SoFi in Grand Rapids, Michigan. “Generally, as you get older, you spend less on food, transportation, clothing and entertainment but spend more on health care, charitable contributions and services. Food, energy and transportation are significant drivers of inflation so that some retirees may be less affected by inflation compared to their working counterparts.”

The bad news, however, is that inflation still affects you. It could be worse than average, depending on where you live. Furthermore, retirees often find themselves in a precarious position regarding inflation based on several factors. READ MORE.

Money.com explores the biggest stock splits of 2022 and what they mean for investors.

Fortune.com explains four possible recession scenarios, including one where the S&P 500 rises 16% by the end of 2023.
CNBC.com covers how to prepare your portfolio for a recession.

dsmWealth is published on the first and third Thursday of each month and updated on dsmMagazine.com.

What would you like to see here? Contact us at dsmeditor@bpcdm.com.

You can sign up here to get dsmWealth delivered to your inbox.