MARKET COMMENTARY
The second quarter of 2022 proved to be a challenging environment across public markets. Regardless of geography, sector,
or factor exposure, both equities and fixed income posted negative performance during the quarter. More than two-thirds of
companies reported positive EPS and revenue beats during the most recent earnings season, but there was a focus on lower
than expected forward-looking guidance, as companies highlighted the difficult task of expanding their margins while
maneuvering around residual supply chain issues, elevated raw material and wage costs, with demand for their
products/services potentially beginning to soften. Additionally, companies that over-hired during the previous periods of
rapid growth announced hiring freezes and layoffs. Energy markets remained rangebound due to a confluence of factors
related to the war between Russia and Ukraine, post-pandemic demand outstripping supply, and the unpredictable nature of
China’s Zero-COVID policies. WTI crude nearly re-traced its March 2022 high, reaching $122/barrel in Q2, but quickly
reversed lower for the remainder of the quarter as the likelihood of demand destruction increased and recession fears started
to become baked into market expectations.
After what appeared to be a temporary deceleration of inflation in the April CPI print, a surprisingly strong May CPI print
of 8.6% year-over-year, a 40-year high, pressured the Federal Reserve to hike the fed funds rate 75bps for the first time
since 1994 at their June Meeting. Fed officials signaled their agreement that the economic outlook warranted a restrictive
policy stance, and that an even more restrictive stance may be appropriate if elevated inflation pressures persisted, despite
the likely outcomes of slower growth and higher unemployment. The Fed’s intention to fight inflation at all costs has
introduced the risk of over-tightening, bringing the debate to the forefront on whether it may potentially cause the economy
to enter into a recession.
Upward rate movement in 2022 has challenged Fixed Income broadly, with certain areas experiencing negative performance
similar to equities. Both the Bloomberg U.S. Aggregate Index and U.S. Investment Grade Corporates were down -4.7% and
-7.26%, respectively. Additionally, lower quality and shorter duration U.S. High Yield Corporates and floating rate U.S.
Leveraged Loans came under pressure during the quarter, down -10.0% and -4.5%, respectively.
The S&P 500 and Dow ended the Q2 2022 period down -16.1% and -10.8%, respectively, whereas the Nasdaq and Russell
Midcap Growth Index ended the quarter down -22.4% and -21.1%, respectively. The MSCI World Index was down -16.2%
for the quarter, versus the MSCI Emerging Market Index which was down -11.5%. High yield bond spreads increased by
244bps during the quarter, and treasury yields saw upward movement across the curve compared to the end of March, with
the 2-year increasing from 2.28% to 2.92% and the 10-year increasing from 2.32% to 2.98% by the end of June.
ALTERNATIVE INVESTMENT COMMENTARY*
Along with global equity markets, hedge funds declined in the second quarter as the HFRI Fund-of-Funds Composite
index fell 3.0%, lowering the index’s year-to-date return to -5.7%. In Q2, Global Central Banks’ made it well known that
lowering inflation would be a primary goal of 2022. Investors positioned for the U.S. economy to enter a recession and,
equity, bond, and alternative investments all saw an increase in volatility. For reference, the S&P 500 was down over 8%
in April and June, marking the worst first half of a calendar year in over 50 years. Our ‘Equity Hedged’ and ‘Event
Driven’ managers underperformed during the quarter as the HFRI Event-Driven (Total) Index, and HFRI Equity Hedged
(Total) Index fell by 7.2% and 8.3%, respectively. Our best performing alternative strategy during the second quarter was
RV Multi-Strategy, where most managers posted positive performance. This compares favorably against the HFRI RV
Multi-Strategy index, which also fell by 2.5% in Q2.
*Data taken from HFRI (Hedge Fund Research Indices) as of July 8, 2022
This material contains the current opinions of Family Management Corporation and its affiliates (collectively, “FMC”), which may change without notice. This material is distributed for informational purposes only. It is not a recommendation or offer of any investment or strategy. Nothing herein shall be considered a solicitation to buy or sell, or an offer to buy or sell, to or from any persons in any jurisdiction where such solicitation, offer, purchase, or sale would be unlawful. Information contained herein has been obtained from sources believed to be reliable, but are not guaranteed. FMC provides no guarantees regarding the performance of any investment or strategy. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future performance and individual client results will vary. No part of this material may be reproduced in any form, or referred to in any publication, without the express written permission of FMC.
