Needless to say, the first half of the year needs to be forgotten. Stocks took it on the chin as the major averages have lost meaningful ground so far in 2022. Year to date, the Dow Jones Industrial Average (see chart here) is down over 14%, the S&P 500 (see chart here) is off by almost 20%, the Nasdaq Composite (see chart here) is down almost 30% and the small-cap Russell 2000 (see chart here) year to date is down 23%. As mentioned above, a first half to forget.
As I spoke to in my last blog, I believe we are in a “new norm” pertaining to the stock market. For years stocks have traded at a premium due to the accommodative policies implemented by the Federal Reserve banks from around the globe. Fast forward to today and we are now in a much different environment. Fed banks across the globe are now raising rates to stem off inflationary pressures. I think this policy shift is long overdue and actually very healthy for the stock market. Sure the pain is real from this correction and current bear market, but now that rates are starting to normalize, keyword “starting”, investors can have more confidence in how to gauge and measure value in stocks. Before, it was virtually impossible to properly analyze stocks due to the the accommodative fed policies which included years of zero percent interest rates and government stimulus programs. This backdrop added higher multiples to most asset classes which simply was not sustainable. Now that we are heading back to an even playing field, we can all have more confidence that stocks will begin to trade at their true value and if they are not trading at their real value, we can now identify more accurately undervalued or overvalued stocks and act accordingly.
Wishing everyone a very safe and Happy 4th of July weekend!
~George
