Market Review

The 2nd quarter of 2022 saw a decidedly negative equity market, rising bond yields, and, at times, extreme volatility, continuing the trend that began early in 2022. The first half of the year has been one of the worst in the history of financial assets. The bond market, although expecting rate increases, has nevertheless been caught off guard; market expectations for Fed Funds rate hikes have risen dramatically since early in the year. On June 30th, the S&P 500 Index was down 21% year-to-date, investment grade corporate bonds down 14%, and 10-year bond yields were up 1.2%.
 
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May was another volatile month in the rates markets, although nowhere near what was experienced by the equity markets. The Federal Reserve increased the fed funds rate by 50 basis points (bps) early in the month and made clear that additional hikes of that magnitude would be forthcoming along with a reduction in the size of the Fed’s balance sheet. This month’s inflation prints offered no relief, generally coming in higher than expected.

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In an attempt to keep pace with the rapid demand for ESG investment products, global regulators are stepping up their efforts to protect investors from the potentially misleading marketing practices of both asset managers and corporations alike.

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In prior pieces, we have discussed risks associated with energy dependence that have emerged as a result of the ongoing war in Europe. While the primary concerns of investors, corporations, and policymakers have been focused on conventional oil and gas, we explore the prevalence of these risks across the clean energy transition supply chain as well. This month, we also review the merits of sound corporate governance and why it has been an integral component of our fundamental analysis for decades. Finally, we highlight ESG-related comments from Q1 corporate earnings releases.

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April was another challenging month for financial markets. The Bloomberg U.S. Treasury index returned -3.21% for the period. The yield on the 10-year Treasury rose a remarkable 60 basis points (bps); the 30-year bond finished the month at 2.9%. The slope of the curve shifted frequently, and by month-end the 2-10s slope had gone from flat to 22 bps. Volatility was high. 
 
 
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Current pricing in the bond market makes last year’s discussions about rate increases seem almost quaint. It was only a few short months ago that the debate was centered on two or three fed funds rate hikes during 2022. Instead, we have already had one increase, and the futures market is projecting over 200 basis points of additional hikes this year.

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