Stocks arguably defied expectations in the first half of the year. Major stock market indices made significant gains due to improving inflation, slowing Fed rate hikes, the absence of a recession, a more stable banking sector and a strong rally in tech stocks.
The second quarter of 2022 has been challenging, to say the least, for investors as markets responded negatively to shifting interest rates, supply chain snarls, inflationary pressures and geopolitical challenges.
The concern among stock investors is that rising prices, and subsequent actions by the Federal Reserve, will cause a significant slowing of economic growth and potentially a recession.
There is no better way to describe it – 2021 was a historic year for the markets. After more than a decade of inflation running below the Federal Reserve’s stated 2% target level, the trifecta of rising wages, supply-chain disruptions for many goods and trillions of dollars of government largesse combined to push inflation steadily higher as the year progressed.
As the pandemic appeared to be slowing down, the new highly contagious COVID-19 Delta variant flared this summer causing a momentum slowdown in the third quarter dampening investor enthusiasm. The list of additional concerns included higher inflation, rising interest rates, lofty equity valuations, supply-chain bottlenecks, Federal Reserve policy changes and the chaos in Washington over President Biden’s two massive stimulus proposals and changes to the tax code to pay for them.