From stocks to cryptocurrencies, six months of punishment for investors | business news

By ALEX VEIGA and STAN CHOE, AP Business Writers

Americans with stock portfolios or retirement investment plans would probably prefer to forget about the last six months.

The S&P 500, Wall Street’s broad benchmark for many stock funds, was on track Thursday afternoon down 20% through the end of June after starting the year at an all-time high. It’s the worst start to the year for stocks in decades.

Investors have been dealing with uncertainty and fear this year following a sharp rise in interest rates as the Federal Reserve and other central banks struggled to control the highest inflation in more than 40 years. Higher rates may reduce inflation, but they also slow the economy, increasing the risk of a recession. That helped drive down the value of stocks, bonds, cryptocurrencies and other investments.

On June 13, the S&P 500 plunged into a bear market, falling more than 20% below the all-time high it set earlier this year. It is now 20.4% below the all-time high on January 3, back to where it was at the end of 2020.

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The Fed has been at the center of the market downturn, raising its key short-term interest rates three times this year. Its most recent increase earlier this month was triple the usual amount and its biggest increase since 1994. More outsized increases are almost certain to come.

“You could argue that they are just playing the hand they were dealt, but the reality is that they fell behind a bit and their turn to a much more aggressive political stance has been the reason the market has sold off.” said Ross Mayfield, investment strategist at Baird.

Technology companies, retailers and other stocks that were big winners during the pandemic have been among the biggest losers this year. That includes a more than 35% drop for Tesla, a 70% nosedive for Netflix, and a more than 50% drop for Facebook parent Meta.

Rising bond yields have made these stocks appear overvalued relative to less risky corners of the market, such as utilities, home goods manufacturers and health care companies. They are often called “value” stocks to distinguish them from the stocks of high-growth companies.

Energy is the only gainer this year among the 11 sectors in the S&P 500. The sector is up 29.9% so far, buoyed by rising oil and gasoline prices.

Of the 25 stocks in the index that are up more than 20% this year, all but eight are energy companies.

PAIN PUMP, ENERGY GAIN

The sky-high prices at the pump are the result of a classic squeeze.

Demand for gasoline and other petroleum products rose after the economy roared out of the cave created by the coronavirus. At the same time, supplies of crude oil and gasoline have remained tight. The invasion of Ukraine has upset a key energy-producing region of the world, with sanctions blocking oil from Russia, which ranked third in the world in oil production at the end of last year.

Meanwhile, refineries have less capacity to turn oil into gasoline in the US after several closed during the pandemic. US refining capacity has been reduced for two years in a row, according to the US Energy Information Administration.

As a result, gas prices hit records this year, with the national average for a regular gallon topping $5 a gallon earlier this month, according to AAA.

That spells misery for many drivers, but a nice reward for investors betting on energy stocks.

However, for that strength to continue, concerns about a recession would have to subside. Historically, recessions have caused oil prices to decline by destroying demand. And over the past week, energy stocks have fallen even more than oil prices as some investors grew more fearful of such a scenario, according to strategists at Barclays.

Sometimes even the calmest of the group loses their cool.

Bonds are supposed to be the most stable and reliable part of a portfolio. But not only did they hit investors with losses in the first half of this year, they are on track for one of their worst performances in history.

High-quality investment-grade bonds fell 11.3% for the first six months of 2022, through Monday. Any negative year is a notable thing for bonds. The Bloomberg US Aggregate Index, which many bond funds use as a benchmark, has had just four years of losses on record going back to 1976.

This year’s losses are entirely the result of high inflation and the Fed’s response. Inflation is generally anathema to investors because it erodes the purchase value of fixed-payment bonds to be made in the future.

The 10-year Treasury yield has already more than doubled this year. It stood at 2.98% on Thursday afternoon. More pressure may be on the way as the Fed continues to raise rates, though some analysts say the worst of the damage may be behind them.

Strategists at the Wells Fargo Investment Institute recently increased their forecast for where the 10-year Treasury will end up this year to a range of 3.25% to 3.75%. But they also see it moderating next year to a range of 2.75% to 3.25%.

Supporters of cryptocurrencies have touted them as, among other things, a good hedge against inflation and a safe haven when the stock market crashes. It hasn’t been any of those things this year.

Bitcoin sank from nearly $69,000 in November to below $20,000 this month, in part due to the same forces that hit stocks: inflation and higher interest rates.

Some events unique to the cryptocurrency industry also influenced and eroded investor confidence. A supposed stablecoin crashed, costing investors around $40 billion. A hedge fund dedicated to digital assets was reportedly facing liquidation. And some bank-like companies, which take crypto as deposits and then lend it out, have suspended withdrawals as they struggled to shore up their finances.

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