The first month of the second half of 2022 has officially ended, and the volatility in the markets has not subsided yet.
Meanwhile, the ISM manufacturing index is expected to be released today, August 1, with expectations of the lowest reading since May 2020. The likely prolonged slump in the U.S. manufacturing sector may indicate that business investments and consumer spending will slow down.
Further, job gains and wage growth slowed down with some sideways movement is expected to be reported. Amid the challenges that keep coming for the markets in 2022, Mohamed El-Erian, President of Queen’s College of the Cambridge Univerisity, tweeted on July 31, a snapshot of asset performance year-to-date (YTD) compared with the previous two years.
In short, most asset classes in 2022 have been in the red, led by Bitcoin (BTC) and the Nasdaq index, losing -48.60% and -20.80%, respectively. All the while, the correlation between Bitcoin and the Nasdaq index recently reached an all-time high. Oil has been a relative outperformer gaining over 31% YTD, mostly due to the war in Ukraine, while commodities, in general, have been trading choppily in 2022.
The shift the Federal Reserve (Fed) made in its policy of tightening the financial conditions and reducing liquidity is weighing on equities, especially the more speculative ones; yet, most of the earnings that have come out so far have shown some form of growth with cuts to forecasts due to high uncertainty.
This complex interplay between tighter financial conditions, high inflation, and passable earnings from corporate America may play out for the rest of the year. In turn, it could mean modest returns for investors as growth projections could be cut by companies looking into an uncertain future.
A few opportunities
Despite the negativity in the markets, some opportunities could be had in value stocks, as they tend to be cheaper in a recession, and if inflation continues to be high, historically, value stocks tend to perform better. Similarly, growing technology stocks, the more established names, have shown solid earnings, which the markets rewarded with less frenzied trading and lowered volatility.
Furthermore, as the performance of the UK FTSE 100 shows, there could be opportunities in Europe and the UK for stocks that have not been keeping pace with with their American counterparts.
All in all, market participants have seen a volatile year so far, but there is a possibility that this will continue, so sticking to a set investing strategy could be the best move to make this year.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.