September 05, 2022

The first half of 2022 was horrible for financial markets. It showcased some of the worst performance ever for both stocks and bonds. Both asset classes falling at the same time doesn’t happen often, especially for two quarters in a row (just the fourth time in a century).

So now we’re officially in a bear market, which is defined as a 20% or more drop from the most recent peak. The S&P 500 closed June down 19.96% for the year, but at one point was down nearly 23%. In fact, the S&P 500 return for the first six months of 2022 ranks among the worst 3% of all six-month returns since 1946.

The only worse six-month periods are the 2008 financial crisis, the 1970s bear market, World War II, the 1937 market crash, and the Great Depression.

If you refuse to sell into headwinds, these huge losses are all on paper. But many people took this one squarely on the jaw – several mutual fund companies reported large redemptions in May and June.

Making matters worse, bonds suffered big too. The 10-year U.S. Treasury lost 11.34% of value in 2022 through June. That was the second worst six-month loss ever, beaten only by the bond bear market in 1980.

As bond prices decrease, their yields increase. During the price fall, the yield on the 10-year note more than doubled, rising well above 3% – that hasn’t happened since 2010.

This means investors with a traditional portfolio of 60% stocks and 40% bonds got hammered. Returns in the first six months of 2022 were in the bottom 2% of rolling returns going all the way back to 1926. The portfolio produced losses of more than 16% in the first six months of 2022.

While diversified investors usually don’t experience losses in stocks and bonds, it does happen.