ETFs On Track For Worst Year In Decades

The bear market in U.S. stocks reached new depths Thursday, a day after the Federal Reserve hiked interest rates by the largest amount since 1994.  

The S&P 500 was down 3.2% to 3,670 by midday, more than reversing Wednesday’s post-Fed 1.5% relief rally. With the day’s losses, the index is now lower by 22.4% on a year-to-date basis—a historically horrible return. 

If the year ended here, the S&P 500 would register its worst annual decline since 2008 and its second-worst annual decline since 1974. On a total return basis, the index lost 37% in 2008 and 26.5% in 1974. 

The S&P 500 dropped by 22.1% in 2002, the year in which the index troughed following the busting of the dot-com bubble. 

What makes this year’s decline in stocks especially perilous is there has been no counterweight from bonds, which typically rise in times of market and economic stress. But this time around, surging inflation and a hawkish Fed have sent bonds in the opposite direction, negating their traditional safe haven role.  

The Bloomberg US Aggregate Bond Index is down by 11.7% year to date, its worst decline ever. 

Losses Across The Board  

The one-two punch of declining stocks and bonds has taken a toll on ETFs across the board. The SPDR S&P 500 ETF Trust (SPY) is down by 22.7% year to date, while the iShares Russell 2000 ETF (IWM) is lower by 26.1%. 

Meanwhile, the iShares Core US Aggregate Bond ETF (AGG) has lost 11.8%; the iShares 7-10 Year Treasury Bond ETF (IEF) is lower by 13%; and the iShares 20+ Year Treasury Bond ETF (TLT) is down by 25.2%. 

Corporate bond ETFs like the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) shed 17.4% and 13.7%, respectively. 

Rare bright spots have been the SPDR Gold Trust (GLD), which is hanging on to a 1% gain, and other commodity-focused funds, like the United States Commodity Index Fund (USCI), the United States Oil Fund (USO) and the Energy Select Sector SPDR Fund (XLE), which are up by 39.4%, 62.1%, and 40.1%, respectively. 

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