The stock and bond market’s substantial decline in the first six months of 2022 was one for the record books — its worst start to a year in decades. What made this period so unusual was that bonds did not work as a hedge or diversifier for a weak stock market. If the year ended today, the bond market would post its worst decline in history. For stocks, most of their poor performance was attributable to declining multiples (price-to-earnings, price-to-sales, etc.), and the next test will be if second-quarter earnings deteriorate due to sales and margin pressure. For Treasury bonds, the rise in real rates led to price declines, while for investment-grade and high-yield credit, spread widening led to additional losses.
Specific to stocks and the credit market, the bad news is that the back half of the first-quarter earnings season was fairly negative, but the good news is that the first-quarter earnings period is over. This week, no S&P 500 Index companies will report earnings, leaving the market to focus on other news items and factors to find guidance. Hopefully, we will get at least a brief, summertime respite before corporations start their next reporting cycle in a few weeks…but as of this morning, it appears as if there will be no rest for the weary.
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