Monthly Market Update - June 2022


The markets are famously forward looking, but it is never without some strain. The myopia has been particularly strong this year. When the market heads up, is it a sign of a bottom or just a bear market rally? When the market dips, is it the beginning of a deep dive or a blip that shouts buying opportunity? The best way to sort out these possible futures is a deep examination of similar pasts. But we live in rapidly changing times with any number of unprecedented circumstances. This past May was a good example as the stock market stuttered and jumped and finally finished the month virtually flat. The S&P 500® returned 0.2% for the month, bringing the year-to-date return to -12.8%. Within that seemingly placid May, things were considerably more exciting, with the Index jumping up 4% early in the month before taking a dive to -5.6% on May 20th and then erasing that entire loss by month end. Meanwhile, the bond market remained relatively stable, with the yield curve flat, despite the anticipation of half-point rate increases from the Federal Reserve coming in June and July. This calm in the bond market is normally a plus for stocks, although the “normal” should be read with appropriate caveats.

Investment results so far this year have varied considerably based on the type of stocks and assets held. For instance, the tech-heavy NASDAQ 100 was down -22.3% year-to-date through May, 9.5% more than the broader market as measured by the S&P 500. The more speculative growth stock indices have lost considerably more than the lower-valued stocks in the value indices. True also by sector as the S&P Energy Sector popped 58% while the Consumer Discretionary Sector dipped more than -24%. These trends generally held true in May.

One source of uncertainty are the consequences of the Federal Reserve’s commitment to begin unwinding its massive $9 trillion asset portfolio. The impact of not re-investing approximately $95 billion of bonds and notes a month as they mature is not a scenario with good antecedents. In effect, this unwinding is the reverse of stimulus, helping put the brakes on the economy. The Fed’s main concern at this moment is tamping down inflation, and the unwinding of monetary stimulus is part of this, along with rate increases. While the rate of inflation has moderated slightly so far this year, it is running much higher than the Fed’s targeted 2%. Much of the angst among investors is trying to calculate the impact of the Fed’s inflation fighting efforts. One aspect that seems inarguable is that both inflation and higher interest rates hit the lower income segment of the population hardest. The Fed’s focus on taming inflation recognizes this pain while acknowledging that persistent inflation is the least attractive outcome and would wreak havoc across the economy.


We believe a lot of the negative news that has echoed around the world, from the war in Ukraine to Chinese lockdowns and higher fuel prices, has been discounted by the market. That said, this summer will see a series of key economic reports which will shed light on the state of the U.S. economy. We will be watching for early indicators of evolving employment, wage growth, inflation, consumer confidence, and consumer demand. With uncertainty high, investors should be prepared for sharp reactions to every one of these releases.

“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

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The Nasdaq-100 includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.

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The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 89% of the total market capitalization of the Russell 3000 Index.

The Russell 1000® Growth Index is designed to track those securities within the broader Russell 1000 Index that FTSE Russell has determined exhibit growth characteristics.

The Russell 1000® Value Index is designed to track those securities within the broader Russell 1000 Index that FTSE Russell has determined exhibit value characteristics.

Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 11% of the total market capitalization of the Russell 3000® Index.

The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.

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International Equities Definitions
The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets countries (excluding the US) and 23 Emerging Markets countries. With 1,843 constituents, the index covers approximately 85% of the global equity opportunity set outside the US.

The MSCI EAFE (Europe, Australasia & Far East) Index is a free-float adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada.

Emerging Markets - MSCI Emerging Market Index – captures large and mid cap representation across 24 Emerging Markets (EM) countries. With 1,138 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

China - MSCI China Index - captures large and mid cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs).

Japan - MSCI Japan Index - is designed to measure the performance of the large and mid cap segments of the Japanese market.

Germany - MSCI Germany Index - is designed to measure the performance of the large and mid cap segments of the German market.

United Kingdom - MSCI United Kingdom Index - is designed to measure the performance of the large and mid cap segments of the UK market.

India - MSCI India Index - is designed to measure the performance of the large and mid cap segments of the Indian market.

Fixed Income Definitions
Government Bond - Bloomberg US Government Index - measures the performance of the U.S. Treasury and U.S. Agency Indices, including Treasuries and U.S. agency debentures. It is a component of the U.S. Government/Credit Index and the U.S. Aggregate Index.

Municipal - Bloomberg U.S. Municipal Index - covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.

U.S. Aggregate Bond - Bloomberg U.S. Aggregate Bond Index - is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage backed securities, asset-backed securities and corporate securities, with maturities greater than one year.

Investment Grade Corporate - Bloomberg U.S. Credit Index - measures the investment grade, US dollar-denominated, fixed-rate, taxable corporate and government related bond markets. It is composed of the US Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities.

High Yield - Bloomberg U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded.

Weighted Avg. Market Cap: measures the size of the companies in which the portfolio invests. Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its price per share.

Price-to-Earnings (P/E) Ratio: measures how expensive a stock is. It is calculated by the weighted average of a stock’s current price divided by the company’s earnings per share of stock in a portfolio.

Dividend Yield: the portfolio’s weighted average of the underlying portfolio holdings and not the yield of the portfolio.