During the first half of 2022 stocks declined 20% as measured by the S&P 500 Stock Index. The decline reflected, rising inflation, rising interest rates, falling corporate earning expectations and fear of recession. This is a dramatic change from the optimism that fueled a 28.7% rise in the S&P 500 Stock Index last year.
What can we expect going forward? My crystal ball is cloudy, but there are some things we do know. The labor supply remains tight, with upward pressure on wages. Material costs are rising due to supply chain issues and increased demand. However, company managements are adjusting to the new conditions. They are reducing costs, rebalancing inventories, reexamining capital expenditures and raising prices to help maintain earnings and profit margins. Consumers are likely to respond by reducing expenditures and increasing savings.
Whether or when we experience a recession remains to be seen, but these are normal business cycle readjustments for a free economy. While unnerving, these events present an opportunity for investors having the patience to ride through the cycle, as stock prices become more attractive. The stock market is a leading indicator and will likely turn before the above issues have been resolved. It has never been easy for investors to maintain perspective and optimism during economic and market corrections, but those who have done so have been well rewarded.
We will continue to focus our attention on well managed companies providing needed products and services, seeking attractive opportunities.