July 11, 2022 "It Was A Brutal First Half"

 

Brutal First Half Of '22 On Track To Shave $8 Trillion Off S&P 500

NEW YORK, (Reuters) - Steep losses in stocks and bonds, dizzying market swings and a Federal Reserve intent on curbing the worst inflation in more than forty years have been among the hallmarks of U.S. markets in the first half of 2022. As of Wednesday, the S&P 500 (.SPX) is on track to close the initial six months of 2022 with a 20% loss, shedding some $8.2 trillion in market value as the index heads for its steepest first-half decline since 1970. The index earlier this month confirmed the common definition of a bear market by closing down over 20% from its January record peak. read more For now, investors see little respite from the gyrations that have pummeled markets over the last several months amid worries that the Fed's fight against inflation will further dry up risk appetite while potentially throwing the U.S. economy into recession. The coming month will bring a fresh round of corporate earnings, the latest inflation data and culminate in a Fed meeting, leaving plenty of opportunities for markets to build on a nascent rally in stocks that began in mid-June or seek out fresh lows. Soaring inflation forced the Fed to quickly raise rates in the first half of the year, throwing into reverse the easy monetary policy that helped the S&P 500 more than double from its March 2020 lows. read more The index's slide has pummeled many of the high-growth shares that prospered in recent years. One high profile casualty has been Cathie Wood's ARK Innovation ETF (ARKK.P), which holds post-pandemic favorites such as Zoom Video Communications (ZM.O), Teladoc Health Inc (TDOC.N) and Roku Inc (ROKU.O), is down 57% year-to-date. The tumble in equities has also severely tested the popular strategy of buying stocks on weakness, which rewarded investors for the better part of the last decade but has floundered this year amid the S&P's decline. The benchmark index has seen three rebounds of at least 6% this year that have reversed to fall below its prior low point. The latest bounce has the index up about 3% since its mid-June low. Another popular approach that has suffered this year is the so-called 60/40 portfolio, where investors count on a blend of stocks and bonds to protect against market declines, with equities rising amid economic optimism and bonds strengthening during turbulent times. That strategy has gone awry in 2022 as expectations of a hawkish Fed weighed on both asset classes. The BlackRock 60/40 Target Allocation fund is down 16% since the start of the year, its worst performance since it launched in 2006. The first half of the year saw volatility return to global financial markets in spectacular fashion, with stocks, bonds and currencies all jolted by central bank moves as well as surging geopolitical tensions. But while the Cboe Volatility Index (.VIX), or "Wall Street fear gauge," has remained elevated through the year to date, it has failed to close higher than the 37, the average level that marked past market bottoms. That has led some investors to fret that the selling might not be done. Few believe the wild swings in markets will subside until there is evidence that inflation is cooling, allowing the Fed to slow or halt its monetary policy tightening. For now, warnings of a looming recession have grown louder on Wall Street, as the effects of higher rates seep into the economy.

WSJ MarketWatch: ‘Peak Inflation Is Not Here Yet’: Rents Continue To Rise, Putting Pressure On Would-Be Homebuyers. That’s Bad News For The Fed.

July 6, 2022 In the first half of 2022, rents increased by 5.4% nationwide, and by double-digit percentages in some major cities, Apartment List said Rents in New York City are up 27% over the past year, Apartment List said. Given that housing, or owners’ equivalent rent, is over 20% of the CPI index, yes, that is concerning as it will add to already high inflation pressures.’ — Jennifer Lee, senior economist at BMO Capital Markets Rents will continue to rise, contributing to inflation, until the end of the year, economists say. With home prices and mortgage rates this high, many prospective homeowners are choosing to rent longer, opting to wait it out until prices normalize. But rents are also increasing, helped along by a housing-supply shortage that’s hiking the cost of living for millions of Americans. The national median monthly asking rent even surpassed $2,000 for the first time in May, according to Redfin,  That’s all feeding into inflation, the very enemy the Federal Reserve is trying to address. Shelter, including rental costs and owners’ equivalent rent, or what a homeowner could rent their property for, makes up about a third of the Consumer Price Index, a key inflation gauge.  Over the first half of this year, rents have increased by 5.4% nationwide, according to a report by Apartment List. While that’s actually a slower rise than the jump in rents over the same period last year, big cities are still seeing some absurd swings in rental prices: rents in New York City, for example, are up 27% over the past year, Apartment List said. The San Jose metropolitan area, meanwhile, has seen the fastest rent growth over the last six months, while prices in Boston, Seattle — and even smaller markets like Hartford, Conn., and Providence, R.I., — are also increasing.  “Rents are surging given that housing supply is still tight; plus, prices are also going through the roof,” Jennifer Lee, senior economist at BMO Capital Markets, told MarketWatch.

The Fed Will Get More Hawkish, But Cannot Cool Inflation; Why $5K Gold Is Coming - Rob McEwen

The Federal Reserve is expected to turn more hawkish. Markets are pricing in a 75 bps increase at the next FOMC meeting, as opposed to a 50 bps rise. Rob McEwen, Chairman and Chief Owner of McEwen Mining Corp, agrees with the market's sentiment. However, even with more rate hikes and quantitative tightening, he does not think the Fed can tame inflation, barring a Volcker-like approach. In the 1970s-80s period of double-digit inflation, Fed Chairman Paul Volcker raised interest rates to 20 percent, bringing down inflation. "The horse is already out of the barn," said McEwen. "[The Fed] has created a monster with monetary expansion and low interest rates. It's going to take quite a while to tame that." Amid this economic turmoil, he sees opportunity in gold. He added that he predicts $5,000 per oz gold in the next "two to three years." "Look at Amazon, look at Shopify, look at a lot of the tech stocks," he said. "When the market suddenly decided to get in, [those stocks] exploded in value. Why shouldn't gold and nickel and other metals not do the same? It's just a rotation in the market from one sector to another… When suddenly the mood shifts, and it becomes less optimistic, then you ask, 'How do I preserve what I have?' And gold has fulfilled that function over millennia."