The Takeaway
- Receding inflation concerns during the first half of the quarter paved the way for a global equity markets rally. During the latter part of the quarter, however, the trend reversed, and all style indexes closed in negative territory. Despite the heightened volatility, growth fared better than value across the globe.
- Growth also dominated internationally across the mid- and small-cap bonds in the US, with the US Small Cap Broad Growth Extended Index sustaining the narrowest losses across the style indexes.
The first half of the third quarter of 2022 saw most global equity markets rebound from their June lows as fears concerning inflation pressures and further hawkish sentiments subsided. This market environment pushed growth to post greater gains than value. The trend reversed, however, with an antithetical latter third of the quarter, as higher than expected inflation data was released in mid-July. A strengthening dollar, which spurred worries for weaker than expected third-quarter earnings in the US, fears of further rate hikes in 2022 and 2023, and rejuvenated aggressions in the Russia-Ukraine conflict paved the way for a bearish close to the quarter.
Although all the style indexes closed the quarter in significantly negative territory, losses were not distributed evenly across the board. Value exposures bore the brunt of the impact as growth overperformed noticeably across all geographic regions and size segments. For instance, small-value equities in the US lagged their growth counterparts by almost 330 basis points, reversing this year's trend that favoured value over growth. The same story was reiterated across different size segments with both large- and mid-growth stocks showing resilience against their value analogues. From a style-agnostic perspective, we observed small caps faring better than mid- and large caps, as the effects of the risk-on attitude of the first half of the quarter rippled through to September.
Globally, where our style family is built by applying the broad style methodology to our suite of Target Market Exposure Indexes (targeting large- and mid-cap stocks representing 85% of the investable market), the dynamics closely mirrored those in the US, but greater losses were sustained because of exchange-rate movements and the significant strengthening of the dollar. The Morningstar Global Growth Index finished ahead of the pack compared with its non-US counterparts, some of which sustained losses in the double digits (such as the Morningstar Emerging Markets Index). In global regions, however, spreads between growth-value styles were of lesser magnitudes than those in the US.
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