Q2 2022 Market Update

Friday, October 28, 2022 - 13:34

The following Q2 2022 market update provides context for the investment performance of your charitable assets.

From Cambridge Associates, investment advisor

Investor sentiment soured in the second quarter, leading to steep declines across nearly all asset classes. The global asset repricing was driven primarily by central bank tightening and concerns about an economic “hard landing,” where restrictive monetary conditions tip the economy into a recession. Other developments also clouded the outlook: Russia cut natural gas shipments to Europe, escalating the region’s energy crisis; China continued to impose strict COVID-19 lockdowns, which resulted in a domestic slowdown; and ongoing supply chain disruptions sparked fears that inflation could remain elevated even if growth stagnates. These factors contributed to significant turmoil in risk assets.

US equities fell into a bear market in the second quarter, extending losses for the year. US equities experienced their sharpest quarterly drawdown since 2008 (outside the initial pandemic sell-off), bringing first-half performance to the lowest since 1962. US stocks trailed developed equities, excluding the US peers again as rising interest rates and economic growth concerns weighed on tech- and growth-heavy US shares; this dynamic was reflected in underlying sector performance. All 11 S&P 500 Index sectors declined, with consumer discretionary, communication services, and information technology falling the most. Defensive consumer staples and utilities fell the least, followed by energy. Growth trailed value by the widest margin since the tech bubble burst in 2000 and has given up nearly all its pandemic outperformance over value. Large caps edged small caps, outperforming for the fifth straight quarter.

Developed country equities, excluding the United States, bested US peers for the first time in six quarters. All major countries and regions posted double-digit losses. Emerging markets equities topped their developed counterparts for the first time in six quarters, as index heavyweight China buoyed the broader index, posting the only gains among emerging markets countries.

All fixed income categories ended in the red as yields rose while rising credit spreads weighed on high-yield and investment-grade corporates relative to Treasuries. Commodities and cash delivered the only gains for the quarter. However, within commodities, energy was the only subcategory that gained, offsetting steep declines for industrial metals.

We expect continued market volatility as recession fears mount globally in the near term. Thrivent Charitable’s portfolios are well-diversified and designed to withstand various economic and market environments, and they continue to do so effectively through this crisis. Our go-forward priorities are to know what we own, talk to our managers, assess the portfolio risks, and look for opportunities that may arise. We believe that staying calm, invested, and prepared is the best course of action at this point.