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State of the Economy and Markets

Quarter 2, 2022

It’s official: The U.S. stock market, as measured by the S&P 500 Index, entered a bear market on Monday, June 13. The cumulative decline in the S&P 500 Index since closing at its record high in January is now over 20%. A bear market happens every three to four years, and this marks the seventh in the past 50 years and the fourth since the bursting of the technology bubble in 2000 to 2002.

The causes for and lengths of each bear market, though, have been different. The primary cause of today’s bear market is the Federal Reserve’s quest to manage inflation; fueled by the pandemic and the war between Russia and Ukraine, inflation is rising at a rapid pace not seen since the early 1980s. The average length of a bear market is around nine to 13 months. The three longest bear markets on record have each lasted less than three years. The shortest bear market is also our most recent (March 2020), lasting only 33 days. In contrast, bull markets occur much more frequently and last much longer. Since 1949, the average bull market has lasted 49 months. The average gains (114%) during a bull market have also far exceeded the average loss (36%) during a bear market.

While market downturns make for an uncomfortable investor experience, they are unfortunately part of long-term market cycles. Each one has been followed by a recovery and subsequent growth that has more than made up for the losses. Predicting when a downturn will occur or when the recovery will begin has proven nearly impossible, unfortunately. In our experience, an investment strategy and asset allocation that allows for investors to stay the course during these market declines has proven to be significantly more successful than that of someone who retreated to cash or conservative investments with low rates of return. Staying fully invested and not missing the market’s best days has been the recipe for long-term gains.

As we head into the second half of 2022, the headwinds facing the economy remain the same: Can the Federal Reserve increase interest rates enough to combat inflation without causing a recession? Most recently, Federal Reserve Chair Jerome Powell has stated that causing a recession is not the intended outcome but that “it’s certainly a possibility,” and that “it’s absolutely essential” to bring down inflation. Rising fuel costs and continued supply-chain disruptions have sent prices even higher over the past few months. The Federal Reserve has raised interest rates three times already in 2022, the most recent increase being 0.75%, the largest in nearly 30 years. It is expected that they will increase rates at each of their remaining four meetings this year, and Chair Powell has indicated that another increase of 0.75% may be warranted in July.

As of right now, it appears a recession will be avoided in the near-term as second quarter GDP is expected to be positive after contracting at 1.5% in the first quarter. Considering the forecast for GDP growth for the remainder of the year and with unemployment near 50-year lows, it may well be avoided all together for 2022.

As for the current bear market, only time will tell if we have seen the cycle lows. It is likely we have not as we are just over five months from inception. The likely scenario given what we know now is that the markets could be at a similar level for up to a few months more and that a recovery is probably a year or more out. Future investor sentiment will likely be driven by the Federal Reserve Board’s ability to tame inflation and the prospects of a soft landing for the economy as opposed to a recession.

As always, your relationship team is here to meet with you in whichever way is most comfortable for you. We value your relationship and the confidence you have placed in Adirondack Wealth Management by choosing us as your financial partner.


Michael Brodt
Senior Vice President
Wealth Management Director