Inflation Frustration and Recession Obsession 

The Fed’s Inflation Battle Continues

Weak Growth and Elevated Inflation

After a poor start to the year, markets continued to sell off throughout the second quarter of 2022.  A respite in May was followed by downwards momentum in June, with all major equity indexes logging steep declines for the month. Both the S&P 500 and Nasdaq dropped more than 8%, while the Dow lost 6.7% in June.

Fed, Inflation, and Growth Risk

The U.S. stock market experienced a roller-coaster May, with the S&P 500 dipping more than 20% below its high but bouncing back in the final week of the month. The Dow and the S&P 500 ended the month little changed, while the Nasdaq lost about 1.9%.

Market Sell-Off Amid Headwinds

The US stock market sank in April with the Nasdaq falling 13.0% ‒ its worst monthly performance since October 2008. The S&P 500 lost 8.8% ‒ that index’s worst month since March 2020. Similarly, the Dow Jones Industrial Average was down 4.9% on the month. The slowing economy, a hawkish US Central Bank, surging inflation, ongoing Russia-Ukraine War, China Covid lockdown, and mixed first-quarter earnings reports have all contributed to the market's sell-off.

Rebounds Amid Continued Uncertainty

The major equity benchmarks ended higher in March, reclaiming some of the ground lost over the first two months of the year. The S&P 500 and Nasdaq finished the month up more than 3% each with the Dow adding 2.5%. A continued rise in many commodity prices boosted the energy and utility sectors while financial shares underperformed. Financials were dragged lower in part by a flattening yield curve as banks tend to profit from larger spreads between short-and long-term rates.

Escalation, Inflation, and Interest Rates

Ongoing inflation, escalation of the Russia-Ukraine conflict, and concerns about central banks tightening roiled the markets in February. All three major U.S. averages posted monthly losses, with the S&P 500 down 3%. The Dow Jones Industrial Average dropped 3.3%, while the tech-heavy Nasdaq Composite lost 3.4%. On a sector basis, technology, telecommunication, and consumer discretionary underperformed, while the energy sector gained 7.1% to outperform the market.

Market Correction; Hawkish Fed Pivot

Rising interest rate fears and growth worries pushed the S&P 500 Index to its worst month since March 2020, posting a loss of 5.2%. The Dow Jones Industrial Average lost 3.3%, while the tech-heavy Nasdaq Composite slumped 9%. On a sector basis, technology, consumer discretionary and real estate underperformed, while the energy sector gained 19% to far outperform the market. Financials and consumer staples proved to be defensive assets during the rotation.

Equities Rebound Despite Inflation

All three indexes finished higher in December with the S&P 500 up 4.5% and the Dow up 5.5% outperforming the tech-heavy Nasdaq up 0.8%. For 2021, the S&P 500 rose 26.9%, notching a three-year winning streak, while the Dow and Nasdaq gained 18.7% and 21.4%, respectively. Energy and real estate were the best-performing sectors in the S&P 500 in 2021, both surging more than 40%, followed by tech and financials, each rising more than 30%.

Omicron Shocks, Inflation Persists

Pausing the 2021 uptrend, the S&P 500 recorded a mild negative 0.73% return while the Dow Jones Industrial Average experienced a loss of 3.5%. In contrast, the Nasdaq continued with a significant positive return at 1.9%. More notable intra-month was the sudden emerging concern of the new Covid variant Omicron, which negatively impacted the stock market on November 26.