Chart of the Week: Looking Beyond the Record Market Rout

July 1, 2022

The first half of 2022 was a good reminder for all investors that the stock market doesn’t move in a straight line.

If you have been trying to time the market, and “buy the dip”, it is very likely that you are nursing your wounds given the sharp declines in the stock market.

These are the three things that we know from the stock market performance during the first half of this year:

  1. The S&P 500 has just suffered its worst first half since 1970 with a decline of 20.6%
  2. The Nasdaq Composite Index posted a record-setting loss in the first half
  3. Consumer stocks were the worst losers as the S&P 500 Consumer Discretionary Index slumped 33% during the first half of 2022

This is perhaps vindication for stock doomsayers, given the stunning reversal of fate when compared to the broad bull market rally that we have been witnessing over the last 10 years or so.

However, if you’ve been predicting a market collapse over the last decade, you’re bound to get it right eventually.

What investors need to know is that a correction, bear market and recessions are all part of the cycle when you’re investing in the stock market.

Truth to be told, this is the first bear market that I will be facing (excluding the short blip during COVID-19 pandemic) since I started investing but it has always been something that I’m aware of.

Investing in the stock market is not about making a quick buck. It’s about buying into a piece of a listed company called shares and gaining from the increase in their value over time.

The 1970 market rebounded sharply in the second half

A quick look at history: the year 1970, which suffered a decline of 21% during the first half at that time, eventually soared 21% in the second half.

I am not saying that a rebound will happen for 2022, especially if a recession does end up happening.

However, since the market has already priced in the probability of a mild recession, we should be looking at a reset of expectations as we kickstart the second half of this year.

The US Federal Reserve is likely to keep rates higher if the oil price continues to go up. Given the ongoing Russia-Ukraine war, it’s anyone’s guess.

But it is worth noting that the oil price has just recorded its first monthly drop since November last year.

As we start the second half of 2022, let us remind ourselves to look beyond the record rout and focus on the long term.

Source: Bloomberg, ProsperUs

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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