Q2 2022 Quarterly Market Commentary

Looking Back at a Rocky First Half

Financial markets remained unsettled during the second quarter as investors continued to search for direction amid a sea of changing condition, and uncertainty. Unfortunately, the overall direction of the markets remained to the downside. The S&P 500 finished the second quarter with its worst three-month period since the first quarter of 2020 and worst first half of a calendar year since 1970. This commentary recaps the first half of 2022 and discusses the top investment themes heading into the second half of 2022.

2nd Quarter Sees a Mixture of Old & New Themes

Investors navigated a combination of old and new investment themes during the second quarter. Inflation remained a major headline as the CPI accelerated at a more than 8% year-over-year pace during both April and May. In response to this persistent inflation, the Federal Reserve continued to tighten monetary policy by raising interest rates at each of the April, May, and June meetings. Same as the first quarter, stocks traded lower as the interest rate increases caused investors to sell riskier assets.

Multiple new themes emerged during the second quarter. Several large retailers reported substantial inventory buildups as inflation pressured consumer spending on discretionary items. These retailers warned their profit margins could decline in the coming quarters as they may need to mark down items to sell the merchandise. From a monetary policy perspective, the Fed supplemented its interest rate increases by starting to reduce its balance sheet and unwind quantitative easing.  The Fed is opting not to reinvest the proceeds of up to $30 billion of maturing Treasury securities and up to $17.5 billion of maturing mortgage-backed securities per month. This decision is another way for the Fed to decrease the amount of money supply & liquidity in their attempt to slow inflation.

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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. CAR-0722-00616

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