Our 2022 Mid-Year Market Update
By Michael Vaughn, CFP®
The 2020s thus far have been anything but routine, and the volatility just won’t quit. From a global pandemic and historic inflation to an unparalleled housing market and a war in Ukraine, it’s hard to believe we’re only two years into this decade. The economic uncertainty of the last few months has many anxious to know where we’re headed.
While there are still many unknowns, we’d like to take the time to reflect and review what’s happened so far in 2022 and what you can expect going forward.
Stock Market Performance
It’s no secret that the stock market has seen increased volatility in the last couple of months—partly due to the uncertainty surrounding the war in Ukraine and partly due to the continued effects of historically high levels of inflation (8.6% for the 12 months ended May 2022). (1)
As of June 13, the S&P 500 is down nearly 21% for 2022. Big tech stocks bore the brunt of the declines, with companies like Amazon and Google parent Alphabet leading the way, dropping 39% and 27%, respectively. Losing over $500 billion off its market cap, Elon Musk’s Tesla has lost 45% of its market value since January, (2) leaving many experts to wonder if the bubble surrounding this industry is about to pop.
This year has seen concerns regarding the global economy reach new highs as many countries struggle in different ways:
- The ongoing COVID-19 surge in China has prompted fresh rounds of lockdowns and stifled economic growth. (3)
- The possibility of nuclear war in the conflict between Russia and Ukraine has many worried. (4)
- High inflation in the U.S. is reducing demand for everyday goods and could send the economy into a recession. (5)
There’s no way to know exactly how all these events will unfold, but our best advice is to keep calm throughout the storm. Stock market volatility, and even recessions, are normal parts of the economic cycle, and sticking with a tried-and-true investment strategy is the best way to navigate uncertain times.
Employment levels have steadily been returning to pre-pandemic numbers, with the May 2022 unemployment rate remaining at 3.6%, unchanged from April. This number, about 6 million people, is similar to the February 2020 pre-pandemic rate of 3.5%, or 5.7 million people. (6)
The payroll employment sector also saw an increase of 390,000 jobs in May, adding gains to the leisure and hospitality, professional services, retail, and manufacturing industries. (7) With these revisions, employment in February and March combined is 39,000 lower than previously reported, suggesting to many experts that the economy as a whole will continue to grow despite high inflation.
Interest Rates and the Federal Reserve
In response to surging inflation, the Federal Reserve yet again raised interest rates on June 15th by 0.75%, the largest hike in a single meeting since 1994. (8) As alarming as this already is, further raises are expected, up to approximately 3.4% by year’s end. This suggests another 1.75% in total rate hikes, spread across the remaining four scheduled policy-setting meetings this year, a much steeper path of rate hikes than was predicted in March.
There is much debate over how much rates should rise in order to effectively combat inflation. Too much of a rise could halt economic recovery, whereas too little could keep inflation rampant and send the economy into a recession. However, a Fed statement reiterated its resolve to ongoing increases, stating, “Overall economic activity appears to have picked up after edging down in the first quarter.” (9)
What Does This Mean for You?
Even though there’s no way to completely know what lies ahead, don’t let that prevent you from taking the steps to protect yourself and pursue financial freedom. Pinnacle Family Advisors can come alongside you as we navigate your financial challenges and opportunities with confidence. Our goal is to make your wealth work for you, not the other way around. To learn more about our 2022 outlook and how we can help you, schedule a complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
Michael Vaughn is a CERTIFIED FINANCIAL PLANNER™ professional and Vice President at Pinnacle Family Advisors (PFA) with 21 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® certification in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.