As we enter the second half of the year, investors continue to grapple with inflation, higher interest rates, the Fed, and the prospect of a recession. If historical bear markets are any indication, the decisions investors make during this period will have long-lasting effects on their portfolios.

Resisting the temptation to overreact to daily market swings, dwelling on the past, and losing sight of bigger factors has never been more important. While it’s difficult to imagine a market recovery today, more than a century of market history suggests that they can occur when investors least expect. Investors should consider what will matter to markets over the next several months as they position for the years and decades ahead. 

The stock market officially fell into bear market territory in June with the S&P 500 losing as much as 23% on the year before recovering somewhat. Last month alone, the S&P 500, Dow and Nasdaq fell 8.4%, 6.7% and 8.7%, respectively. The second quarter experienced the fourth-worst market performance since 1990, adding to a difficult first quarter. Interest rates climbed due to inflation and Fed rate hikes with the 10-year Treasury yield rising as high as 3.47%. The VIX index of stock market volatility hit 34 during the month before settling at 28.7. Bitcoin ended the month down 41% to $18,731, continuing what many have dubbed “crypto winter.” 

There are no two ways about it – bear markets are always difficult as anyone who invested through 2000, 2008 or 2020 can attest. However, experienced investors know that bear markets occur periodically and are an important part of each cycle. For those in a position to do so, these periods present opportunities to invest when valuations are attractive and position for future recoveries and growth. While the future is always uncertain, there is no doubt that all investors wish they had taken advantage of attractive prices during past bear markets. After all, the reason that investors are rewarded in the long run for owning stocks is the ability to stomach short-term uncertainty. 

Below, we discuss several insights from the first half that will carry through to the remainder of the year. These include the relationship between stocks and bonds, inflation, and more. Those investors who can heed these lessons and stay disciplined will likely be better positioned to achieve their long-term financial goals. 

Stocks and Bonds Have Both Struggled This Year