First Half of the Year in Review

Last week we closed the door on the first half of 2022, and from a market perspective the end couldn’t come soon enough. Here is a rundown of the performance of major assets:

S&P 500                                -19.45%

7-10 year US Treasury    -11.17%

20+ year US Treasury     -21.08%

Nasdaq 100 Index            -28.86%

Russell 2000 Index          -22.59%

Gold                                      -1.54%

Oil                                           +39.15%

Vanguard REIT ETF           -19.15%

Cash                                      -5%

As you can see, across most major assets the first half represented a relative blood bath. No amount of diversification could shelter one’s portfolio from sustaining losses. From an historical performance standpoint, the first half represented the worst 6 months for a traditional 60/40 portfolio. US treasury bonds had their worst start to a year in over 150 years. Inflation rose faster than at anytime since 1982. The Federal Reserve, desperate to bring inflation under control, raised rates at their last meeting by 0.75%, the first time it raised rates by that much since 1994. Financial markets now find themselves stuck between a rock and a hard place, with the understanding that the only way out of the inflationary trap is by sending the economy into a recession. The only question is how deep the recession will be.

Today’s US employment figures were released this morning and showed that the economy added 372,000 new jobs. This should normally be construed as positive news, but the market has been looking for reasons to believe the Fed is closer to the end of its rate hiking schedule and numbers like this show that they may have a long way to go. For the moment the market remains trapped in this dilemma—it has fallen quite a bit from the all-time highs, market participants want to believe there is room for the market to recover, but the impact of Fed rate hikes has yet to materialize in economic numbers and forward corporate earnings will need to be lowered. Should the earnings adjustments be small and should inflation fall faster than currently expected, the stock market should recover. However, should the opposite be the case I would expect the stock market to continue to struggle, but I would foresee an opportunity for long-term bonds to recover.

If a “hard landing” recession takes hold long term rates will start to fall which will help the performance of longer dated maturity bonds. The scenario for stocks to outperform would have to be a small dip in economic numbers with a big dip in inflationary pressure. On way or the other it seems that the 6-month correlation between stock and bond prices should begin to break the other way which will dramatically improve the returns of diversified asset portfolios.

Thanks for reading,

Zach and Dave

   Disclosures

All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed, constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.  Tax laws are complex and subject to change. Calibrate Wealth LLC, does not provide tax or legal advice respect to the services or activities described herein except as otherwise provided in writing by Calibrate Wealth. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

This material does not provide individually tailored investment advice. It has been prepared without

regard to the individual financial circumstances and objectives of persons who receive it. The strategies

and/or investments discussed in this material may not be suitable for all investors. Calibrate Wealth

recommends that investors independently evaluate particular investments and

strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a

particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Investing in commodities entails significant risks. Commodity prices may be affected by a variety of

factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii)

governmental programs and policies, (iii) national and international political and economic events, war

and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities

and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other

disruptions due to various factors, including lack of liquidity, participation of speculators and

government intervention.

Foreign currencies may have significant price movements, even within the same day, and any currency

held in an account may lose value against other currencies. Foreign currency exchanges depend on the

relative values of two different currencies and are therefore subject to the risk of fluctuations caused by

a variety of economic and political factors in each of the two relevant countries, as well as global

pressures. These risks include national debt levels, trade deficits and balance of payments, domestic and

foreign interest rates and inflation, global, regional or national political and economic events, monetary

policies of governments and possible government intervention in the currency markets, or other

markets.