Capital Market Review - July 12, 2022

By now, most have seen the headlines that we just finished the worst six-month start to a year since 1970. Recession fears have been increasing, leading some forecasters to raise unfair comparisons to some of the worst recessions in history and even offer predictions around how much worse the second half of the year could be. Observing how the current environment compares to historical events can help us reset our expectations and have confidence that our portfolios are still built for long-term success.

There is no way around it; this was a poor six months for financial markets. Even beyond the worst six-month start to a year in over 50 years, it was one of the worst six month stretches in history for both equity and bond markets.

Looking at every six-month period for the stock market back to 1926, which provides us with 1,153 data points, markets have only had worse six-month periods 3% of the time. Just 40 periods in nearly 100 years have been worse than what we all just invested through. However, one aspect that makes the current period unique: bond returns have only been worse two times in history than what we just experienced. Bonds are supposed to protect our portfolios in volatile equity environments, but the opposite has occurred in 2022. As a result, our diversified portfolios have been hit from both sides, offering nowhere to hide, and raising questions about what we can do. Remember what we wrote a few months ago? Higher yields can mean temporary pain for higher income in the longer-term.

When markets are performing poorly, the doomsday forecasters create much noise. Anything is fair game, from the housing market crashing worse than what we experienced in 2008 to equity markets needing to fall another 50% to be reasonably valued. There are a few points to remember when these headlines fill your newsfeed. First, the direr the headline, the more views it will drive. Second, what is the track record of these forecasters? Is it someone who was right once 15 years ago but has struck out since then? Or is it someone who has never had a positive outlook but continues to make headlines for another end-of-the-world view?

Before making changes to your portfolio to align with the headlines, look at how the current environment compares to history. Do you want to alter your portfolio in reaction to an event that has happened only 3% of the time in nearly 100 years? Over shorter periods, portfolios will go in and out of favor, but most remain on track even in a challenging environment because they are built to achieve long-term goals.

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Author: Joe Clark, CFA | Research Team | Allegheny Financial Group | July 2022

The information included herein was obtained from sources which we believe reliable. This report is being provided for informational purposes only. It does not represent any specific investment and is not intended to be an offer of sale of any kind. Past performance is not a guarantee of future results.

Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered Broker/Dealer. Member FINRA/SIPC.