Q2 Review

2022 Q2 Market Review

Q2 Review

Stocks wrapped up a disappointing first half of 2022 with major indexes entering bear market territory in June. As the U.S. Federal Reserve aggressively moved to hike short-term interest rates to combat inflation, fears of a slowdown in economic growth were touted by major financial news publications. 

In late June, Barron's cover story warned: "The Stock Market Will Get Worse Before It gets a Lot Better." Of course, in late May the magazine had proclaimed on its cover: "The Stock Market Has Avoided a Bear. But the Selloff Isn't Over." Meanwhile, the Wall Street Journal featured an in-depth article in early June by veteran markets reporters Corrie Driebusch and Paul Vigna titled "The Crypto Party is Over." Its teaser was: "The cryptocurrency industry was built on swagger, enthusiasm and optimism. All three are in short supply these days, as losses and layoffs mount."

Against such a backdrop of dour headlines, IFA urges investors to remain disciplined. In support of such efforts, we've continued to create original articles and present evidence-based research through our website.

Along those lines, Dimensional Fund Advisors investment strategist Wes Crill noted in a recent video interview with IFA CEO and Founder Mark Hebner that investors should be aware of a pattern he's found in past bear markets. Most notably, such bears — defined as a drop of 20% or more (in the Fama/French Total US Market Index) — had occurred 15 times from 1929 through 2021.

In more than half of those instances, Crill observed, "the downturn stopped as soon as they hit 20% (in losses)." He added: "So if you're worried about when the bottom is going to come, guess what — it might've already happened." (Click on the video below to watch the full discussion.)  

The following chart illustrates how fruitless it is to try to time dips. The same outcome was apparent whether you considered a drop of 10%, 20% or 30% in equities — over the course of the past 95-plus years, selling after stock prices had fallen brought an increased liklihood of missing subsequent (and substantial) upturns. 

Domestic Equities

Domestic stocks continued to slide in the second quarter as all six of IFA's key domestic equity indexes landed on negative ground. Large value and small value stocks, however, held up better than sister IFA indexes covering small and large growth. Both growth-styled benchmarks fell by more than 20% in Q2. Stepping back to consider the entire initial six months of the year showed value stocks significantly outperformed growth in IFA indexes. 

International (Developed) Equities

IFA index returns from developed international markets turned from mixed in the previous quarter to negative in Q2. Similar to domestic equities, international value-styled stocks showed the best returns in the second quarter, according to IFA's key indexes. 

Emerging Markets Equities

Like international developed markets, stocks issued by companies based in developing countries moved from mixed results in Q1 to negative in the second quarter of 2022. In particular, the IFA index representing mid- and large-cap value emerging markets stocks turned from slightly positive in the previous quarter to negative in Q2. In the first half of the year, the value-oriented emerging markets index held up better than sister IFA indexes covering blended small- and large-cap emerging markets stocks.   

Real Estate Equities

Domestic REITs fell slightly more than international real estate stocks, according to estimates by Dimensional Fund Advisors. Indeed, the IFA Global REIT Index dropped by nearly 15.60%. That was less than the -18.10% slide in Q2 for U.S. REITs.    

Fixed-Income

In the second quarter, the 30-year U.S. Treasury rate increased by 0.70 of a percentage point to 2.44%. Meanwhile, the 10-year U.S. Treasury rate rose by 0.59 of a percentage point to 2.39%. Also, the five-year U.S. Treasury rate rose by 0.46 of a percentage point to 2.55%. 

For Q2, IFA's fixed-income benchmarks showed a fairly wide range of outcomes. For example, short-term government bonds as represented in the IFA One-Year Fixed Income Index, slid by 0.22%. At the other end of the Q2 spectrum, the IFA Five-Year Global Fixed Income Index fell by 1.47%

In general, if interest rates have risen, the price of existing bonds can be expected to decrease.

IFA Index Portfolios

The second quarter showed how different exposures to risk impacted short-term portfolio outcomes. That's why we like to encourage investors — whether relative newbies or well-educated veterans — to engage in an ongoing conversation with an IFA wealth advisor regarding each individual's risk capacity. Besides offering an online Risk Capacity Survey, we provide to each client a complimentary and holistic financial plan

Below is an overview of how several IFA Index Portfolios performed in the second quarter as well as over the first-half of 2022. All of these benchmark returns are shown net of the maximum annual 0.90% advisory fee through June 30, 2022.) 

Each quarter, we monitor our recommended funds for clients. As part of that process, we've developed a rating system. For a summary of those results, please feel free to check IFA's Performance Monitoring Report (PMR). 

The wealth of IFA's educational materials are available for Apple iOS and Android devices via the IFA App. This free App is available to download from both the Apple App Store and the Google Play Store for Android. We've also created an Investing Kit that includes a copy of "Index Funds: The 12-Step Recovery Program for Active Investors" book and a documentary film based on the book. It also comes with a Galton Board (Stock Market Edition), which simulates the random distribution of 600 monthly returns of the IFA Index Portfolio 100. You can find the Investing Kit on Shopify.


Performance results for actual clients that invested in accordance with the IFA Index Portfolio Models will vary from the backtested performance due to the use of funds for implementation that differ from those in the index data, market conditions, investments cash flows, mutual fund allocations, changing index allocations over time, frequency and precision of rebalancing, not following IFA's advice, retention of previously held securities, tax loss harvesting and glide path strategies, cash balances, lower advisory fees, varying custodian fees, and/or the timing of fee deductions.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful. Investing involves risks, including possible loss of principal. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you. For more information about Inde