June was a difficult month for the financial markets and had two faces. There was panic in the markets after inflation pressure in the US was much higher than expected. Unexpected interest rate hikes by central banks in Switzerland and the United Kingdom, among others, also caused significant fluctuations. In the second half of the month, however, a period of stabilisation arrived. For instance, energy prices fell, which gave the market some breathing room. China's COVID relaxations also helped stocks in emerging markets. However, consumer confidence remained low. The expectation of a possible recession will be the most important factor for the markets' performance in the coming months.
Best fund performance in June 2022: UBS (Lux) Money Market Sustainable Fund -0.06%
Stocks in developed countries had a volatile start to the month. This was mainly due to inflation pressure in the US (8.6% in May, YoY) and the fear of aggressive interest rate hikes. The Fed raised the rate by 0.75% during the month to curb inflation and kept the door open for similar increases in the future. The S&P 500 closed the month downwards (-8.4%), partly because there were no positive developments concerning the ongoing war in Ukraine. European stocks had a comparable month, with the Stoxx 600 falling by 8%.
Stocks in emerging markets performed better than stocks from developed countries. Chinese markets rose by 6% during the month, recovering some of the losses from the start of the year. This was largely due to the Chinese COVID relaxations. However, other large stocks in this market suffered heavy losses, such as Samsung (Korea) and TSMC (Taiwan), both of which fell by 15%.
The yields on 10-year government bonds, which showed some signs of stabilisation in May, rose by 0.6% in the first half of the month. However, the government bonds also cooled down quickly in the second half of the month. The US and German 10-year interest rates rose by 0.12% and 0.24% over the course of the month. The ECB did not raise interest rates this month, while central banks in Switzerland and the United Kingdom surprised the world with unplanned interest rate hikes.
High-yield bonds and corporate bonds performed worse than government bonds as the risk premium for companies increased due to recession fears. The money market return in Europe remains low (<0.5%), but may rise slightly in the coming quarters due to the interest rate increases.
- Any peaceful resolution to the war in Ukraine will be crucial to reduce market volatility.
- The uncertainty and volatility occurring in the market, and the underlying factors causing it, are very likely to persist in the coming period.
- The earnings season will provide the much-desired clarity on the true health of companies. Moreover, it will provide more insight into the impact of inflation on the business community.
Important data:
- July 13 for the June inflation figures in the US
- July 26 Microsoft quarterly results
- July 28 Apple quarterly results
Do not let the turbulent market disrupt your long-term goals. Vive's investment strategies take the downward market into account. Ultimately, well-diversified portfolios are the key to long-term success. Consistent periodic investing in periods like this is crucial to benefit from falling markets.