2022 Mid-Year Outlook: U.S. Stocks and Economy

Toward the end of last year, as usual, we penned our 2022 outlook and the vast majority of our expectations panned out. Those included:

  • Consumers' strength and confidence being tested by inflation (especially on the goods side of the economy)
  • Rise in labor force participation
  • Rolling over in profit margins
  • Federal Reserve's tapering to pick up speed
  • Carnage in narratives-driven and speculation-hyped market segments
  • Earnings becoming "less hot"
  • Quality-oriented factors will be relative outperformers
  • Households' elevated equity exposure bodes ill for equity performance
  • Elevated optimistic sentiment to act as a contrarian signal
  • Indexes to "catch down" to 2021's under-the-surface weakness
  • Higher intra-market correlations and greater tail risks

Let's start with a quick update on market weakness so far in 2022. Unlike last year—when index declines were muted, but churn/weakness under the surface was more pronounced—this year so far has brought much more weakness at the index level (with underlying churn still extreme). This is shown in our crowd-favorite drawdowns table below.

The year-to-date return thru 5/27/2022 for the S&P 500, NASDAQ, and Russell 2000 is -13%, -23%, and -16%, respectively.

Source: Charles Schwab, Bloomberg, as of 5/27/2022.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results. Some members excluded from year-to-date return columns given additions to indices were after January 2022.