2nd Quarter 2022 Market Commentary: ‘E’asy Does It

Benjamin M. Lavine, CFA, CAIA, RICP
Chief Investment Officer, 3D

Data Source: Bloomberg

To read full commentary, click here.

June 2022 Highlights:

  • After having shown some signs of stabilization in May, global equity markets and risk assets took a turn for the worse in June as lingering concerns over tightening central bank policies and reports of energy/food shortages stemming from the Ukraine/Russia conflict are starting to translate into slower economic activity if not outright contraction.
  • In June, the MSCI All-Country World Index (ACWI) dropped 8.4% with MSCI Pacific ex-Japan (-5.7%), MSCI Emerging Markets (-6.6%), and MSCI Japan (-7.9%) outperforming the U.S. (S&P 500 -8.3%) and MSCI Europe (-9.9%). China helped drive Pan-Asia’s outperformance as MSCI China rose 6.6% helped by a strong recovery in its technology sector (Nasdaq Golden Dragons Index up 15.6%) as China looks set to recover from its Zero-COVID lockdowns.
  • Within the U.S., U.S. large caps narrowly outperformed small caps, as both broad market indices grapple with the prospects of a meaningful economic slowdown and uncertainty over prospective earnings growth. Growth outperformed Value as the former benefited from a relief rally following the mid-month plunge across the U.S. market while the latter was hurt by a sell-off in Financials, Materials, and Energy stocks. The S&P 500 Index returning -8.3% versus -8.5% for the S&P 600 Index. S&P Pure Value underperformed Pure Growth, returning -11.2% versus -9.9%, respectively.
  • This month’s ‘Flight-to-Safety’ saw investors rotate to Defensive sectors such as Consumer Staples, Healthcare, and Utilities and out of Financials, Consumer Cyclicals, and Materials/Energy.
  • Risk factor performance also captured this month’s flight-to-safety as Minimum Volatility outperformed the other risk factors while High Quality and Value underperformed.
  • Interest rates rose in June, which contributed to the negative performance of fixed income, but this month saw a swing in rates with the 10-Year U.S. Treasury Yield rising as high as 3.5% around the middle of the month before settling near 3% at the end of June.
  • S. investment grade (Bloomberg US Aggregate) dropped 1.5% due to a combination of higher rates and wider spreads across corporate and MBS/ABS sectors. The Bloomberg/Barclays ex-U.S. Aggregate Bond Index dropped 4.5%, as overseas bond markets were hurt by a combination of higher rates and an appreciating U.S. dollar. U.S. high yield and emerging market debt also poorly performed this month in sympathy with the sell-off of global risk assets. The Bloomberg / Barclays US High Yield Index returned -6.7%, while Bloomberg/Barclays Emerging Market Debt Local Currency dropped 4.8%.
  • Within equity alternatives, it was a volatile month for commodities which saw an initial rally driven by higher oil prices then turned negative throughout the rest of June as prices dropped across the broad basket reflecting the negative end user demand response to higher prices. The S&P GSCI Commodities Index dropped 7.6% while S&P GSCI Precious Metals returned -2.5%. The Dow Jones REITs Index dropped 7.1% in sympathy with the broader U.S. equity sell-off in June.

To read full commentary, click here.