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Second quarter market review with Kevin Barr

July 19, 2022
clock 8 MIN READ

Record-setting interest rate hikes, multi-decade high inflation and fears of another COVID-led slowdown in China set the stage for a difficult quarter.

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- Hi, I'm Kevin Barr, head of SEI's investment management unit. Over the next few minutes, I'll provide an overview of the global financial markets and our perspective on them. Record setting interest rate hikes, multi-decade high inflation, and fears of another COVID led slowdown in China set the stage for a difficult quarter. US and global shares moved in lockstep, tumbling through mid-May. An attempted recovery was followed by further declines. Stocks closed the quarter with double digit losses. Value stocks held up better than gross stocks across both large and small cap markets. The loosening of COVID lockdown restrictions in June propelled China to a strong monthly gain, which tipped it into positive territory for the quarter. That was the only bright spot among major equity markets. Emerging market shares fared better than their developed market counterparts on China's rebound even with Brazil, and most of Latin America tumbling sharply as commodity prices fell. While inflation continued to take a toll on consumers the commodities price decline that began in mid-quarter provided some relief. Crude oil and natural gas hit highs in early June before sliding through the end of the quarter and into July. Weed prices hit a high in mid-May before seeing double digit declines. Interest rates on government bonds rose across all maturities in the US, UK and Euro zone. During the second quarter, the central banks tried to slow the global economy to fight inflation. The inverse relationship between bond rates and prices, meaning that bond prices fall when rates increase, was on full display. Fixed-income performance ranged from relatively modest declines for government bonds to more severe losses for riskier emerging market and high yield bonds. The second quarter was difficult for investors and there is no doubt that rising interest rates will further slow economic growth. While the consensus view points to an increasing likelihood of an economic recession, and additional price declines in both equity and fixed-income markets we think the worst is behind us. Still, in these uncertain times, we believe a focus on diversification, fundamentals, and sound planning matter more now than ever. On behalf of everyone at SEI thank you, as always, for your trust and confidence.

Glossary of financial terms

Bond: A bond is a type of loan sold by an issuer (borrower) to an investor (creditor, debtholder, or lender). Issuers are usually corporations or governments, and bonds typically pay periodic coupons before returning the face value, or principal amount, on a pre-determined date.

Inflation: Inflation refers to the decline in purchasing power associated with rising prices.

Investment grade: Investment grade refers to the credit rating of a debt issuer. Debt securities rated investment grade present relatively low credit risk, or the risk of default, compared to debt with a non-investment or speculative grade rating.

U.S. Treasury Inflation-Protected Securities (TIPS): U.S. Treasury Inflation-Protected Securities are securities issued by the U.S. Treasury designed to provide investors with protection against inflation. The principal of a TIPS typically increases with inflation and decreases with deflation.

Yield: Yield is a general term for the expected return, in percentage or basis points (one basis point is 0.01%), of a fixed-income investment.

Yield curve: The yield curve represents differences in yields across a range of maturities of bonds of the same issuer or credit rating (likelihood of default). A steeper yield curve represents a greater difference between the yields. A flatter curve indicates the yields are closer together.

Index descriptions 

Bloomberg 1-10 Year US TIPS Index: The Bloomberg Barclays 1-10 Year US TIPS Index measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of 1 to 10 years.

Bloomberg Global Aggregate ex-Treasury Index: The Bloomberg Barclays Global Aggregate ex-Treasury Index is an unmanaged market index representative of the total-return performance of ex-Treasury major world bond markets.

Bloomberg Global Treasury Index: The Bloomberg Barclays Global Treasury Index is composed of those securities included in the Bloomberg Barclays Global Aggregate Bond Index that are Treasury securities.

Bloomberg U.S. Corporate Bond Index: The Bloomberg Barclays U.S. Corporate Investment Grade Index is a broad-based benchmark that measures the investment-grade, fixed-rate, taxable corporate bond market.

Bloomberg U.S. Treasury Index: The Bloomberg Barclays U.S. Treasury Index is an unmanaged index composed of U.S. Treasurys.

ICE BofA U.S. High Yield Constrained Index: The ICE BofA U.S. High Yield Constrained Index tracks the performance of below-investment-grade, U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market and caps exposure to individual issuers at 2%.

JPMorgan EMBI Global Diversified Index: The JPMorgan EMBI Global Diversified Index tracks the performance of external debt instruments (including U.S. dollar-denominated and other external-currency-denominated Brady bonds, loans, eurobonds and local-market instruments) in the emerging markets.

JPMorgan GBI-EM Global Diversified Index: The JPMorgan GBI-EM Global Diversified Index tracks the performance of debt instruments issued in domestic currencies by emerging-market governments.

MSCI ACWI Index: The MSCI ACWI Index  is a market capitalization weighted index composed of over 2,800 companies, and is representative of the market structure of 50 developed and emerging market countries in North and South America, Europe, Africa, and the Pacific Rim. The index is calculated with net dividends reinvested in U.S. dollars.

S&P 500 Index: The S&P 500 Index is an unmanaged, market-capitalization weighted index that consists of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market

Important Information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Positioning and holdings are subject to change. All information as of the date indicated.  There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information.

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice.  Nothing herein is intended to be a forecast of future events, or a guarantee of future results. 

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