S&P 500 logs worst first half since 1970

Wall Street wrapped up a brutal first half of 2022, as elevated inflation and a hawkish Federal Reserve stoke recession fears. This was reported by The Xinhua News Agency.

The S&P 500, the broader market index, dropped 20.6% year to date, its largest first-half decline since 1970. The index dropped more than 21% from its January record, meeting the criteria for a bear market. A bear market is commonly defined by a fall of at least 20% from a recent peak.

Meanwhile, the Dow Jones Industrial Average lost more than 15% this year, and Nasdaq Composite Index, down 29.5%, marking the worst hit.

"It's a very, very, very tough market" and "one of the most difficult markets I've seen", – Larry Benedict, who has over thirty years of experience as an investment professional, told Xinhua.

"Everybody's really getting hurt in the market ... the sentiment is extremely negative", – said Benedict, CEO and founder of The Opportunistic Trader, a U.S. market research firm.

The market rout came as investors grew fearful about red-hot inflation, aggressive central bank tightening and higher recession risk.

The U.S. annual inflation hit a 40-year high of 8.6% in May. The U.S. Commerce Department reported Thursday that the core personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, rose 4.7% in May on a year-over-year basis. While the index was slightly below market estimates, it was still near multi-decade highs and well above the Fed's inflation target of 2%.

In June, the Fed accelerated its policy tightening by a 75-basis-point rate hike, the largest increase since 1994, in response to rising inflation expectations and an unexpectedly high CPI print. The U.S. central bank also indicated that a rapid pace of tightening would likely continue at the July meeting.

This Fed hawkishness added fuel to market fears that drastic rate hikes may push the U.S. economy into a recession.

In his testimony to U.S. Congress last week, Fed Chair Jerome Powell said that the central bank is trying to bring inflation down without inflicting too much damage, but a recession is "a possibility."

The Fed chief also said a "soft" landing for the U.S. economy would be "very challenging."

Experts warned of higher risk of a U.S. recession, noting that investors should be prepared for continued market volatility.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a recent analysis that the chances of a recession ticked higher, "driven by the Fed's latest rate hike and hawkish forward guidance".

"A prolonged, substantial rally seems a bit unlikely as the potential for a U.S. recession remains elevated with investors probably needing more signs of an 'all-clear' before sentiment materially improves", – said Shawn Snyder, head of Investment Strategy at Citi Personal Wealth Management.

Benedict said he expects "a bumpy ride" ahead for the market, given a lot of uncertainty regarding the economic outlook.

"Worries over both the pace of central bank tightening and growth look set to keep equities volatile", – said UBS analysts.

The main driver of markets in the second half of the year will be "investor perceptions of whether we are headed for stagflation, reflation, a soft landing, or a slump", – they said.