Weekly Update: July 25: Click here to read what happens after a historically weak quarter for stocks and bonds

By Debra Taylor, CPA/PFS, JD, CDFA™


Dear Friends,
A historically weak quarter, six months, and year for both stocks & bonds, is now behind us. With stocks and bonds both showing weakness, even a well balanced portfolio didn’t stand a chance for positive returns.
As most of you are aware, we have been bearish on core bonds for almost two years, and recommended under exposure for some time. Generally speaking, our portfolios benefited, although there was little room to hide so far this year.
As shown in the chart below, since 1976, the second quarter of 2022 was the fifth worst for the S&P 500 Index, and the fourth worst for the Bloomberg U.S. Aggregate Bond Index. And to top it off, the worst quarter for a combination of the two.

Below are some additional things to consider about the most recent quarter:
  • Of the 10 worst quarters for a 60/40 portfolio, every other one was driven mostly by S&P 500 losses. The third quarter of 1981 was the only other quarter in the bottom 10 that saw both stocks and bonds decline.
  • Q1 and Q2 2022 combined was the second worst two-quarter period for a 60/40 portfolio.
  • This is the second consecutive quarterly loss for a 60/40 portfolio. That has happened nine times in the past. The average return over the next quarter was 5.0%. The streak ended at two quarters seven times and extended to a third quarter twice.
We remain in a turbulent period for markets and the economy. While we don’t believe anything more than a mild recession is priced into the S&P 500, we think the S&P 500 still has the potential to see solid gains from here by year end.
Despite experiencing the worst first half in the market in 52 years, history has shown that it (normally) pays to stay invested during downturns similar to the one we have faced so far in 2022. In fact, in the 12 “bear markets” the S&P 500 has undergone since 1957, the 12-month performance was positive on 9 out of 12 occurrences
Please reach out with any questions.

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