2022 has started unusually poorly for stocks.
Adjusting for inflation, the first half of the year was the worst for $SPX500 in 150 years.
In the past, weak first halves were always followed by strong second halves.
The sample size is small, however (1932, 1939, 1940, 1962, 1970), and this time, the reversal may not happen.
The reason for this is that central banks’ interest rates hikes will keep slowing the economy into 2023.
And the markets rarely bottom before the economy.
In the second half of 2022, investors will have to contend with interest rate increases, persistently high inflation, falling earnings estimates, and geopolitical risks. GDP is already falling in the US,
and it was recently reported that if Russia were to cut oil output, oil prices might shoot up to $380, which would cause a severe global recession.
Overall, we see the balance of risks to the economy as the worst since 2008 and therefore hold a large allocation to cash. The average recession sees stocks fall 40%; we are not there yet.
The share of cash in the portfolio was increased to 60%.