PUNISHING Pandemic winners became losers

FROM C1 market has sold off,” said Ross Mayfield, investment strategist at Baird.

One winner, many losers

Technology companies, retailers and other stocks that were big winners during the pandemic have been among the biggest losers this year. That includes a more than 36 percent tumble for Tesla, a 71 percent nosedive for Netflix and a more than 50 percent plunge for Facebook parent Meta.

Rising bond yields have made these stocks look overpriced relative to less-risky corners of the market, such as utilities, household goods makers and health care firms. These are often called “value” stocks to distinguish them from stocks of highgrowth companies.

Energy is the lone gainer this year among the 11 sectors in the S&P 500. The sector is up more than 29 percent so far, buoyed by surging oil and gasoline prices.

Of the 21 stocks in the index that have risen more than 20 percent this year, all but seven are energy companies.

Pump pain, energy’s gain

The soaring prices at the pump are the result of a classic squeeze.

Demand surged for gasoline and other oil products after the economy roared out of the cavern created by the coronavirus. At the same time, supplies for crude oil and gasoline have remained tight. The invasion of Ukraine upset a key energyproducing region of the world, with sanctions blocking oil from Russia, which ranked third in the world for oil production at the end of last year.

Meanwhile, refineries have less ability to turn oil into gasoline in the U.S. after several shut down during the pandemic. U.S. refining capacity has dropped for two straight years, according to the U.S. Energy Information Administration.

As a result, gasoline prices have shot to records this year, with the national average for a gallon of regular topping $5 per gallon earlier this month, according to AAA. California prices exceed $6 a gallon.

That’s meant misery for many drivers, but a nice payoff for investors who bet on energy stocks.

For such strength to continue, though, worries about a recession would have to abate. Recessions have historically led to drops in oil prices by destroying demand. And over the last week, stocks of energy companies have dropped even more than oil prices as some investors grew more fearful of just such a scenario, according to strategists at Barclays.

Busted bonds

Sometimes even the calm one in the group loses their cool.

Bonds are supposed to be the steadier, more reliable part of a portfolio. But they not only slammed investors with losses in the first half of this year, they’re on pace for one of their worst performances in history.

High-quality, investment-grade bonds were down 11.3 percent for the first six months of 2022, as of Monday. Any down year is a notable thing for bonds. The Bloomberg US Aggregate index, which many bond funds use as their benchmark, has had just four losing years on records going back to 1976.

This year’s losses are entirely the result of high inflation and the Fed’s response to it. Inflation is generally anathema to investors because it erodes the purchasing value of the fixed payments bonds will make in the future.

The yield on the 10-year Treasury has already more than doubled this year. It stood at 2.97 percent Thursday. More pressure may be on the way as the Fed keeps raising rates, though some analysts say the worst of the damage may have passed.

Strategists at the Wells Fargo Investment Institute recently hiked their forecast for where the 10-year Treasury will end this year to a range of 3.25 percent to 3.75 percent. But they also see it moderating the next year to a range of 2.75 percent to 3.25 percent.

Crypto crash

Supporters of cryptocurrencies have touted them as, among other things, a good hedge against inflation and a safe haven when the stock market slumps. They’ve been neither of those things this year.

Bitcoin sank from nearly $69,000 in November to below $20,000 this month, partly due to the same forces that pummeled stocks: inflation and higher interest rates.

Some events unique to the cryptocurrency industry also factored in and eroded investors’ confidence. A socalled stablecoin collapsed, costing investors around $40 billion. A hedge fund dedicated to digital assets was reportedly facing liquidation. And some banklike companies, which take cryptocurrencies as deposits and then lend them out, suspended withdrawals as they scrambled to shore up their finances.