It was not a great month or a great quarter for most investors, and not a very good start to the year either as multiple commentators have been at pains to point out. It was, in fact, the worst first half since 1970 (, 7/1/22). That included a week that saw the S&P 500 drop -5.8% for the five days ending June 17, the worst week since 2020. Most assets were in the red through 1H with the notable exception of the U.S. dollar, which rallied strongly (, 7/1/22), buoyed by a flight to safety, and some commodities, most dramatically oil/energy sectors of the S&P, up nearly 30%.

The S&P 500 was down about -8.26% in June and -19.97% on the year (, 7/1/22). Inflation, and the Fed’s response, has been the through line for markets. The Consumer Price Index rose 8.6% (, 6/10/22) in May, the biggest increase in four decades. Meanwhile, June saw the biggest bump in the Fed Funds rate since 1994, up 75 basis points while longer dated bonds rallied as fears of slowing economy began to take hold and the voices of those predicting recession grew louder. Yields on the 10-year treasury ended the month back under 3.0% (, 6/30/22).

There were plenty of signs that the economy was starting to lose steam. May retail sales fell (, 6/15/22), the first decline in five months, on weak demand for autos. New home construction was off (, 6/16/22) as mortgage rates rose and growth in the manufacturing sector slowed. Speaking as part of a European Central bank policy forum, Fed Chair Powell said (, 6/29/22), “overall the U.S. economy is well positioned to withstand tighter monetary policy.”

Possible, though a reading of history might lead investors to be less optimistic. As a Wall Street Journal (, 6/18/22) story pointed out “most tightening cycles (have) historically ended in recession.” By the Journal’s count nine of the 12 cycles since the 1950s have ended that way. While such an outcome is not yet inevitable, there is little in the Fed’s recent record to suggest that the current group is likely to prove any more successful at engineering a “soft landing” than most of its predecessors.


Peak Inflation

There were some signs that the underlying components of the current inflation were starting to ease. Oil fell to around $102/barrel (, 6/29/22) before prices bounced a little to end the month. The energy sector broadly led the market down for June, off nearly -16.00% according to the Chicago Mercantile Exchange (CME) index of S&P 500 Energy stocks (, 7/1/22). Wheat prices declined as more Russian grain found its way to market (, 6/30/22). Copper – sometimes called “Dr. Copper” for its alleged ability to predict economic activity – hit a 16-month low going into the month’s last week (, 6/24/22). Other commodities declined as well (, 7/4/22).

Other signs as reported by Bloomberg included a drop in the price of semiconductors used in electronic products, down by half from its 2018 peak; a fall in the spot rate for shipping containers, off by 26% from its all-time high last September; and a 24% decline in North American fertilizer prices. The good news is that as these costs make their way through the economy, inflation is likely to ease. The bad news is that prices are declining mostly on reduced demand, indicating a slowing economy (, 6/6/22).

It remains an open question how markets will react for the balance of the year. Research from S&P Dow Jones found that since 1957 when the S&P had a down first half it had a down second half too about 50% of the time. In other words, a coin toss. As always, there is data to support virtually any point of view. With 1Q 2022 GDP having come in at -1.5%, and more and more forecasters predicting a further decline in 2Q we may already be in a recession (; 7/1/22) as it has been historically defined – two consecutive quarters of negative growth – (though nothing is official until the National Bureau of Economic Research weighs in). How deep and how long will depend, in part, on what the Fed does next.

Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index. All investments are subject to market risk and will fluctuate in value.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The Federal Funds Rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.

The Chicago Mercantile Exchange or CME is a futures exchange which trades in interest rates, currencies, indices, metals, and agricultural products.

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

The GDP is the total of all value added created in an economy. The value added means the value of goods and services that have been produced minus the value of the goods and services needed to produce them, the so-called intermediate consumption.

“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.