Following financial markets in 2022 has only been fun for history majors. The highest inflation in 40 years, the largest interest-rate hike since 1994, and the most severe European conflict since World War II all contributed to the worst first half for equity markets since 1970 and the steepest bond market losses since the Reagan presidency. Meanwhile, crashes in the tech sector and cryptocurrency have drawn comparisons to the dot-com bubble, the Ponzi scheme, and even the Dutch tulip mania.
Very few investors remember such a horrid first half of a year. The Morningstar Global Markets Index, a broad gauge of equities across developed and emerging markets, officially entered bear-market territory, with a decline of 20.1% in the first half of 2022. The Morningstar US Market Index, the largest contributor to global equities, was down 21.3%, the Morningstar Europe Index fell 23.3%, and the Morningstar Asia Pacific Index was off 17%.
Bonds, which typically cushion losses during times of equity market stress, provided no refuge. The Morningstar Global Treasury Index fell more than 15% over the first six months of 2022, while the Morningstar US Core Bond Index declined roughly 10% for the same period.
As investors look to the second half of 2022 and beyond, they must reckon with an altered market complexion. How has the investment landscape shifted in terms of sector, region, yield, and so on? Which leaders have been dethroned and which are ascendant?