The first half of the year was terrible. Worst in decades for stocks. Way worse than anyone would have predicted at the start of the year.
Arguably the biggest single cause of the misery was the spike in oil prices. Russia’s invasion of Ukraine accelerated a rise that was already building as the world emerged from the pandemic. The onset of the worst inflation in living memory that followed kicked the Federal Reserve and other central banks into action with hyperaggressive interest-rate hikes.
The combination of inflation and interest-rate hikes are a double whammy for consumers, the backbone of economic growth. And that darkening outlook is what produced the S&P 500’s poorest performance since 1970.
But, like all energy-price spikes, this one contains the seeds of its own destruction. While concerns about tight oil supply have kept prices up, the outlook for weaker demand is also having an impact.
Crude fell in June. While oil companies were the only winners in the stock market in the first half, share prices slipped last month, suggesting investors are already betting that prices can’t stay high forever.
Dhaval Joshi, chief strategist for BCA Research’s Counterpoint, predicts that oil prices will halve to around $55 a barrel if they follow the pattern laid out in previous recessions.
That would certainly go a long way in helping the Fed bring inflation under control. Core inflation already ticked down in May. Gasoline prices also fell for the first time in nine weeks in the period ending June 20.
To be sure, a lot of damage has already been done by high energy prices. But if they fall back soon, as history suggests they should, the second half of 2022 could be much better than most people currently expect.
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S&P 500 Posts Its Worst First Half Since Nixon Era
The S&P 500 has posted its worst first half of a year since Richard Nixon’s presidency in 1970. It tumbled 20.6% amid expectations of high inflation and a hawkish Federal Reserve, according to Dow Jones markets data, and many investors are worried it has yet to hit bottom.
- Other corners of the stock market are seeing worse. The small-cap benchmark Russell 2000 index is down 24% this year, its worst first half since its 1984 inception. The tech-heavy Nasdaq Composite has plunged 29.5%, the worst first half since its inception in 1971.
- The three…
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