by The Gould Asset Management Team Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Second Quarter of 2022. The excerpt is posted here for the benefit of our blog subscribers.

Stock Market Decline Accelerates in Q2,
Reaching Bear Market Status

The second quarter of 2022 proved highly challenging for US and global markets, as high inflation, rising interest rates, and the war in Ukraine fanned recession concerns and spooked investors, sending stocks tumbling globally.

US large cap stocks, as measured by the S&P 500 stock index, declined 16.1% in the second quarter and are down 20.0% for the year-to-date through June, the market’s worst first half in more than 50 years.

Some of the highest flying sectors over the last couple years were the hardest hit on the quarter, with Consumer Discretionary (down 25.5%) and Technology (down 19.7%) among the worst performers. Every S&P sector declined in Q2 (even Energy), with the recession-resistant Consumer Staples (down 4.0%) and Utilities (down 5.1%) sectors performing best.

Mid and small cap US stocks fared even worse than large cap stocks, with the Wilshire 4500 stock index declining 19.9% on the quarter. Year-to-date, extended markets have shed 25.9%, or more than a quarter of their value. Smaller companies tend to be more sensitive to changes in the economy, suggesting recession concerns are weighing on mid and small cap stocks.

International developed and emerging markets stocks also declined amid the global pullback, but outperformed US stocks, with the MSCI EAFE index falling 14.3% (down 19.3% year-to-date) and the MSCI Emerging Markets index dropping 11.3% (down 17.5% year-to-date). The outperformance is noteworthy considering that the US dollar remained strong in Q2 (up 5.0%), which creates headwinds for international stocks.

Market volatility climbed over the quarter as markets tumbled, with the VIX volatility index rising from about 20 to 28 at quarter-end and reaching 34 on two occasions. Volatility was relatively subdued given the carnage in the market, consistent with an orderly decline.

To continue reading, please see our entire Economic and Market Review.