U.S. Versus International
The S&P 500, an index of large U.S. companies, posted a total return of -16.5% for the Second Quarter of 2022. U.S. stocks marginally outperformed international again for the quarter as measured by the iShares MSCI EAFE ETF, a representation of international stocks outside the U.S. EAFE total return for the Second Quarter of 2022 was -13.2%.
International countries are moving more slowly to raise interest rates and curb inflation. This has resulted in greater concern in the U.S. regarding rising interest rates, creating a slowdown in economic activity. Concerns have increased that the pace of rising interest rates could result in a U.S. recession.
The S&P 500 index has fallen 20.6% through June 30, 2022. This marks the worst first six months of a calendar year in 52 years. Technology and consumer discretionary companies that represent a large percentage of the S&P 500 index have been hit harder than most due to their high valuations. The Russell 2000 index, a representation of the 2000 smallest companies in the United States, has declined especially hard due to the expected impact of rising rates on U.S. economic activity. Smaller companies are more likely to be impacted directly by U.S. economic activity.
U.S. Sectors
Top performing U.S. S&P 500 sectors as reported by Koyfin for the Second Quarter of 2022 by total return include Consumer Staples (-4.2%), Utilities (-5.1%) and Energy (-5.4%). Laggards for the Second Quarter include Consumer Discretionary (-25.5%), Communications (-20.9%) and Technology (-19.8%).
Top performing S&P 500 sectors as reported by Koyfin year-to-date through June 30, 2022, include Energy (31.5%), Utilities (-0.6%) and Consumer Staples (-5.3%). Laggards year-to-date include Consumer Discretionary (-32.5%), Communications (-29.8%) and Technology (-26.6%).
The fear trade carried over into the second quarter with inflation oriented and needs-based investments leading performance. Utilities and Consumer Staples stocks typically hold up well during recessionary conditions as they are essential services that consumers will purchase regardless of a downturn in the economy.
The opposite side of a fear trade is highlighted by stocks with high valuations and growth fueled by “nonessential” items that may drop in demand in the face of rising inflation and conflict. The sharp divergence between sectors with positive and negative performance highlights uncertainty in investment markets at this time.
| Index | Second Quarter 2022 | Year To-Date 2022 |
| S&P 500 | -16.5% | -20.6% |
| Dow Jones Industrial Average | -11.3% | -15.3% |
| Russell 2000 | -17.5% | -23.9% |
| MSCI EAFE (International Index) | -13.2% | -18.8% |
| Barclays Aggregate Bond | -4.8% | -10.4% |