The stock market made headlines by closing out the first half of 2022 with a -20% return. It was the worst first half to a year in decades (1962: -23.5%; 1970: -21%). However, we find ourselves at an interesting juncture across many financial markets, not just the stock market.
The bond market is drawing interesting attention. The curve between the 10-year Treasury yield and the 2-year yield has become inverted, meaning the 2-year is now higher than the 10-year. As of midday Tuesday, the 2-year Treasury yield was at 2.792%, above the 2.789% rate of the 10-year. Historically, such a setup has been a warning sign that the economy could be weakening and market participants have an increased concern about recession.
Also of note, the U.S. dollar continues to strengthen against major foreign currencies. Relative to the euro, the U.S. dollar is at 20-year highs (at $1.02 per euro this morning). This trend is an advantage to Americans purchasing goods and services overseas in euros and other currencies, yet it is a drag to foreign consumers, corporations, and economies who rely on American goods and services priced in U.S. dollars.
Everything is interconnected. No market exists in isolation. Although stocks and bonds represent the majority of our clients’ portfolios, we study global markets like foreign currencies, commodities, and others because they provide insight into understanding domestic trends that affect our portfolios. Let us know if we can be helpful to you on these topics in any way.