Key points:
- A late May rally pushed equity markets into modestly positive territory for the month, but June started poorly, removing any positive momentum.
- Fixed income investors saw some reprieve as interest rates moved from recent high levels amid concerns of weaker expectations for economic growth in the last half of the year.
- The first half of June saw markets enter a “bear market” by definition.
- High market volatility is expected to persist at least until year-end.
- Historical performance suggests long-term returns will be positive going forward.
“We don’t know what path the current bear market will take, but it is reassuring to know the odds are good that better days are ahead for the stock market — but only if we stay in the game.” — Andy Craske
It has been a roller coaster ride so far this year, and current conditions suggest the potential for volatility will continue throughout the remainder of 2022.
Slowing economic growth, high expectations for earnings, tightening monetary conditions and a difficult labor market will continue to influence the market in the months to come.
Despite the positive May result, many asset classes remain negative year-to-date and in correction territory — down 10% or more — as persistently high inflation, tightening monetary policy globally and continued supply chain issues weigh on sentiment.
Real estate (FTSE NAREIT Equity REITs Index) came under pressure in May following worse than expected housing starts data and fears that higher mortgage rates will cool the residential housing market.
This S&P 500 index recently entered bear market territory, defined as a drop of 20% or more from a previous high. Market volatility has been particularly brutal, which tends to lead many investors to question their commitment to a long-term investment plan. But if we look at history, the odds are good that long-term returns from this point forward are likely to be positive.
The one- and three-year returns for the S&P 500 gives us some clues as to what might happen.
In all cases except one, the S&P 500 posted a positive return three years later, and the average gain across these time periods was 30%.
We don’t know what path the current bear market will take, but it is reassuring to know the odds are good that better days are ahead for the stock market — but only if we stay in the game.
In periods of volatility, similar to what we are currently experiencing, the likelihood of making emotional and potentially detrimental decisions is rising. But these corrections are a normal part of market movement. They are temporary.
The best strategy forward is to stay the course with a long-term and disciplined approach to investing.
Questions or concerns? Contact the foundation at 866-363-9673, foundation@fumf.org or by completing the contact us form.
Craske is the foundation’s vice president of loans and investments