But cryptos and DeFi created a big mess as hidden leverage is blowing up, and the mess spread to stocks.
By Wolf Richter for WOLF STREET.
The most interesting thing that shows up today in the stock market nightmare figures of the first-half of 2022 isn’t that it was the worst first half for the S&P 500 since 1970, which was just a coincidence of the calendar in that the S&P 500 peaked at the very beginning of the year, on January 3, and then spiraled lower for six months; whereas, for example, in the year 2000 at the beginning of the dotcom bust during which the S&P 500 would eventually drop by over 50%, the index rose 3.9% through the peak on March 23, and then fell 4.8% through June 30, for a first-half dip of just 1.0%.
No, what was really interesting in the first half of 2022 was that every major S&P 500 segment was more or less deeply in the red – led by Consumer Discretionary (-32.8%), Communication Services (-30.2%), and Information Technology (-26.9%) – except Energy, and that even energy then cratered in June.
Energy was king of the hill until June 8, then cratered too.
The energy sector was up for the first half by 31.8%, the only sector to be up in the first half – and it was a big gain even after the red-hot run-up that started in November 2020.
This 31.8% gain came despite the big sell-off in energy starting around June 8, when energy stocks lost their grip and let go. For the entire month of June, the stocks in the S&P 500 Energy sector dropped by 16.8%, according to data from S&P Dow Jones Indices, leaving every S&P 500 sector in June in the red.
Exxon [XOM] peaked on June 8, closing at $104.59 that day, and then dropped 18.1% in the three weeks since then, closing at $85.64 today. Chevron [CVX] also peaked on June 8, closing at $181.13, and has since dropped 20.2%.
Here are the performances for the first half of 2022 and or June of the major indices and of the major S&P 500 sectors:
|Major Stock Indices||June||YTD|
|Dow Jones Industrial Average||-7.4%||-15.3%|
|S&P 500 Sectors||June||YTD|
Bonds got crushed too across the board.
Investment-grade bonds, as tracked by the iShares Core US Aggregate Bond ETF [AGG] fell 10.3% in the first half.
The bond fund that tracks Treasury maturities of 20 years or longer, the iShares 20 Plus Year Treasury Bond ETF [TLT] fell 20.4% in the first half.
Junk bonds, as tracked by iShares iBoxx High Yield Corporate Bond ETF [HYG], fell 15.4% in the first half.
None of these bond ETFs go back to the last period of big inflation and big rate hikes in the 1970s and early 1980s. These ETFs are relatively new creatures that have been around for less than 20 years and have not been tested in this high-inflation and Fed-tightening environment.
I’m not going to even mention cryptos and DeFi.
I’m just going to ignore the collapse of cryptos – they’re down by about two-thirds – and the entire space of DeFi that has provided large amounts of leverage to the crypto sector and is now collapsing due to the collapse of cryptos, taking down hedge funds and a number of publicly traded stocks.
There is a whole gaggle of crypto-related stocks that are down over 80% and 90%. For example:
- Coinbase [COIN]: -89% from the peak in April 2021; -81% in the first half.
- MicroStrategy [MSTR]: -88% from the high in February 2021; -71% in the first half.
- Hut & Mining [HUT]: -92% from the peak in November 2021; -83% in the first half.
- Riot Blockchain [RIOT]: -92% from the peak in February 2021; -81% in the first half.
- Marathon Digital [MARA]: -94% from November; -84% in the first half.
You get the idea. It’s a mess out there in crypto land, and unlike the last crypto sell-off, this time there is a huge amount of leverage involved, and the extent of the leverage is oozing from the woodwork as DeFi is blowing up, and there are now publicly traded companies involved, and the shrapnel is flying far and wide. Cryptos alone have lost $2 trillion in market cap, and then there are the losses by DeFi and in publicly traded stocks and in loans whose collateral has vanished. Thankfully, a big part of the losses go to holders overseas, and so this is much less of a US problem.
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