The first month of the second half of 2022 has closed, and market volatility has not yet lessened.
Meanwhile, the ISM manufacturing index is anticipated to be reported today, August 1, with the lowest reading since May 2020. The expected decline in the U.S. manufacturing sector may signal a slowdown in company investments and consumer spending.
In addition, employment increases and pay growth are anticipated to have halted with some sideways movement. Mohamed El-Erian, president of Queen’s College at the University of Cambridge, tweeted on July 31, 2022, a snapshot of asset performance year-to-date (YTD) compared to the previous two years in light of the persistent issues facing the markets in 2022.
In 2022, most asset classes have underperformed, led by Bitcoin (BTC) and the Nasdaq index, which have lost -48.60 percent and -20.80 percent, respectively. The connection between Bitcoin and the Nasdaq index has lately hit a record level. Oil has been a significant outperformer in 2022, rising over 31 percent YTD, primarily because of the situation in Ukraine, although commodities have traded erratically in general.
The shift the Federal Reserve (Fed) made in its policy of tightening financial conditions and reducing liquidity is weighing on equities, particularly the more speculative ones; however, the majority of earnings that have been reported thus far have shown some form of growth despite forecast reductions due to high levels of uncertainty.
This complicated interaction between tighter financial conditions, strong inflation, and good corporate profitability may continue for the remainder of the year. In turn, this might result in low returns for investors, as corporations may reduce their growth expectations in the face of an uncertain future.
A few possibilities
Despite the market’s pessimism, value stocks may have chances since they tend to be less expensive during a recession and have traditionally performed better while inflation is high. Similarly, the more established firms in the expanding technology sector have shown excellent results, which the markets have rewarded with less frantic trading and less volatility.
Moreover, as seen by the success of the UK FTSE 100, there may be possibilities in Europe and the United Kingdom for equities that have lagged behind their American equivalents.
Overall, market players have seen a troubling year so far, and there is a chance that this will continue, so maintaining a consistent investment approach may be the wisest course of action this year.