June 2022


Investors entered June with optimism, the previous month had provided hope that inflation
may be easing, perhaps giving the Fed some breathing room to slow the pace of the
tightening cycle, and markets had produced positive returns in May. Perhaps the worst was
over? Instead, it was more bad news, as inflation came in higher than expected, forward
earnings guidance was slashed, and the Fed increased short rates by 75 basis points, the
largest upward move since 1994. Hope of a quick recovery for stocks quickly faded into
recession fears, as slowdowns in the hot housing and employment markets, and a possible
pull back in consumer spending materialized on the horizon during the month.



The S&P 500 closed out the worst first half for stocks in over 50 years, plummeting over 8% in
June. While corporate earnings were in line with expectations, forward guidance became
increasingly dour as the month progressed, and investors began pricing in a recession as
early as the second half of this year. Inflationary pressures continued to wreak havoc
overseas, with eurozone inflation hitting 8.6% amid an energy crunch exacerbated by the
continued embargo on Russian exports, and the United Kingdom realized a 9.1% increase in
consumer prices, the highest rate seen there in 4 decades. Against this backdrop, global
stocks faded in lockstep with domestic markets, developed stocks declined by 8%, while
emerging markets sold off to a 6.6% loss.

Fixed Income

Interest rates took a wild ride in June, spiking mid-month as the Federal Reserve lifted the
short rate to combat inflation, before dropping into month-end on recession fears. The tenyear
Treasury yield traded as high as 3.5% before finishing June near 3%. Credit spreads
widened throughout the month, ending at their highest levels since the onset of the COVID
pandemic. Credit and duration continued to underperform amidst these headwinds, with
the high-yield bond index dropping nearly 7% for June. The Bloomberg Aggregate Bond
Index concluded its worst first half in its 46-year history, declining 1.6% for the month.

2 – MSCI – EM
Source: Bloomberg

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