Stock slump in US worst for 50 years

United State stocks have recorded their worst first half in more than 50 years after a rout triggered by the Federal Reserve’s attempt to curb persistent inflation and exacerbated by gathering concerns over global growth.

The S&P 500 fell 0.9 per cent on Thursday (US time), leaving the blue-chip index down by 20.6 per cent in the first six months of 2022.

Wall Street equities have not endured such a punishing start to a year since 1970.

The pullback in US stocks has eviscerated more than US$9 trillion in market value since the end of 2021, according to Bloomberg data on the S&P 1500 index, a broader gauge which tracks small, mid and large-cap groups.

“The market mood is dominated by the possibility of recessions in the US and Europe,” said Bastien Drut, strategist at Paris-based asset manager CPR.

“It is very negative,” he added, warning that the days of being able to rely on central banks easing monetary policy to support economic growth were “gone”.

The technology-heavy Nasdaq Composite has also tumbled this year, sliding 1.3 per cent on Thursday to take its losses in 2022 to almost

30 per cent. All sectors of the S&P 500 have dropped during the half-year, with the exception of energy stocks, which are

29 per cent higher.

Consumer discretionary stocks have fallen the most, registering a 33 per cent decline.

Utility stocks, seen as an inflation hedge because of companies’ stronger ability to pass higher costs to consumers, have given up the least, down 2 per cent this year.

“Everything has been very inflationdriven,” said Paul Leech, co-head of global equities at Barclays. “It has been the theme of the year and it has just intensified, really.”

Across the globe, big stock indices have fallen sharply. Europe’s Stoxx 600 was 1.5 per cent lower on Thursday, leaving it down about 17 per cent this year. MSCI’s index of Asia-Pacific markets has slumped 18 per cent in 2022 in US dollar terms.

Top policymakers at the European Central Bank’s annual conference on Wednesday warned that the era of low interest rates and moderate inflation had come to an end, following the inflation shock caused by Russia’s invasion of Ukraine and the coronavirus pandemic.

Federal Reserve chair Jay Powell has warned that if the central bank does not raise interest rates high enough to combat inflation quickly, the US could face severe and repeated bouts of price rises that policymakers could struggle to rein in.

“The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” he added.

Markets have been rattled this month by interest rate rises from the Fed and Bank of England, the former raising the federal funds rate by 0.75 percentage points to a new target range of 1.5 to 1.75 per cent, with policymakers signalling another big rate increase this month.

The ECB is also planning a quarterpercentage point rise this month for the first time since 2011.

“Stubborn inflation readings have precipitated an increasingly hawkish Fed response, tilting the policy focus to fight inflation despite potential economic consequences,” said Scott Chronert, US equity strategist at Citigroup.

“Investors are deservedly hesitant to buy ahead of ongoing Fed rate hikes and fear of earnings expectation resets.”

The market mood is dominated by the possibility of recessions in the US and Europe.

Bastien Drut, of asset manager CPR