The S&P 500 posted its worst first-half performance since 1970

The first half of 2022 was really challenging for stock market investors. On Thursday, June 30, the S&P 500 ended in the red again, posting its worst half in more than five decades since 1970. It fell more than 21 % year-to-date.

Also, the Dow Jones Industrial Average finished 0.8 % in the red, down 253 points. Similarly, the Nasdaq Composite posted a 1.33% loss, down 150 points.

Market sentiment has turned increasingly negative with each passing quarter. The last quarter of Q2 saw a sharp correction in all three indices, with the Nasdaq Composite falling 22 % in just 90 days. It was also its worst quarterly performance since 2008.

The Federal Reserve's unprecedented money printing measures have led to high inflation, according to many analysts. US inflation is currently at a four-decade high, and the Fed is determined to get it under control. In June, the Fed announced a 75 basis point increase in interest rates and did not rule out further rate hikes if inflationary pressures continue.

So the stock market is trying to adapt to the new reality. A surge in bond yields sent tech stocks lower. Investors move money out of growth-oriented assets and put it into stable assets. Giants like Alphabet and Apple each corrected by 24 %. Facebook is down 52 % and Netflix is down more than 71 % during that time.

Economics and the stock market

That being said, the US economy is red hot in terms of rising inflationary pressures. The Commerce Department reported on Thursday that the core personal consumption expenditure price index jumped 4.7 % in May. This is currently at levels last recorded in the 1980s.

Similarly, the Chicago PMI, which tracks business activity in the region, came in at 56 for the month of June. With these economic concerns looming, the Fed is likely to take aggressive action. However, there is concern that the Fed's interest rate hikes will lead to a recession.

Many analysts believe that a recession is likely to hit the US in the next 12-18 months. So some believe that the market has not yet bottomed out from current levels and inflation will persist longer than expected.

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