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Quarterly Commentary, Q2 2022

Benchmark Returns for the Period Ended
June 2022

RCG "r" Logo (2018)
Quarter Annualized
1 Year 5 Year 10 Year
US Treasury Bills (one month) 0.13% 0.18% 1.06% 0.60%
FTSE World Gov’t Bond 1-3 Years -0.55% -2.49% 1.10% 1.04%
Bloomberg US Gov’t/Credit Inter Bond -2.37% -7.28% 1.13% 1.45%
Standard & Poor’s 500 -16.10% -10.62% 11.31% 12.96%
Russell 1000 Value (large cap value) -12.21% -6.82% 7.17% 10.50%
Russell 2000 (small cap) -17.20% -25.20% 5.17% 9.35%
Russell 2000 Value (small cap value) -15.28% -16.28% 4.89% 9.05%
MSCI Europe, Australasia and Far East (EAFE) -14.51% -17.77% 2.20% 5.40%
MSCI Europe, Australasia and Far East (EAFE) Small Cap -17.94% -23.02% 2.16% 6.70%
MSCI Emerging Markets -11.45% -25.28% 2.18% 3.06%
MSCI US REIT -16.95% -6.14% 5.30% 7.32%

Quarterly Commentary

The first half of 2022 was the worst first half for the S&P 500 since 1970, as the index fell 19.96% and 16.10% in the second quarter alone. Losses persisted throughout the global markets during the second quarter, with few asset classes exempt. International small stocks, as measured by the MSCI EAFE Small Cap Index, were the worst performer in the second quarter, falling 17.94%. U.S. small stocks, as measured by the Russell 2000, weren’t far behind at -17.20% for the quarter. Traditional safe havens like short-term U.S. government bonds were the best performing asset class despite their -0.55% return for the quarter.

Value stocks weathered the storm better than growth stocks. The Russell 1000 Value Index outperformed the S&P 500 by nearly 4% in the second quarter. Some of the most recognized growth stocks of the last decade, Facebook (now known as Meta), Amazon, Apple, Netflix, and Google, collectively nicknamed the “FAANG” stocks, have declined 42.42% year-to-date.

The Federal Reserve has been a focal point so far in 2022. Faced with the dual mandate of controlling inflation and unemployment, the Fed raised rates by 1.25% in the second quarter while inflation has risen 8.60% over the last 12 months. The Fed expressed this as a delicate but necessary step to potentially avoid a recession. While investors would prefer normal inflation and no recession, recessions are a normal part of the economic cycle. Since 1948, there have been 11 economic recessions, roughly one recession every six or seven years. During the same time period, the S&P 500 has an average annual return of 11.40%.

But couldn’t this time be different? Investors have asked themselves this same question each time a recession occurs or anytime there’s a predicted recession that never materializes. History shows us that the stock market and the economy do not move in lockstep. There is no advantage in waiting for an economic expansion, low inflation, and world peace to buy stocks or feel comfortable owning them. As Jack Bogle, the founder of The Vanguard Group and index fund pioneer, once said, “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly 50 years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.” Markets have rewarded patient, disciplined investors over the long term.

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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.