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Top ETF Stories of First-Half 2022 (revised)

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Stocks are on the brink of witnessing the worst start since 1970, as quoted on Yahoo Finance. Only five times since 1932, the S&P 500 has tumbled 15% or more in the first six months of a year. The S&P 500 is off 17.9% so far this year (as of Jun 24, 2022). The Nasdaq Composite is down 28.2% this year, the Dow Jones has lost 13.3% and the Russell 2000 is off 21.3%.

The year, so far, has been caught up with high inflationary pressure across the world due to supply-chain issues, the Russia-Ukraine war, high energy prices, a commodity super-cycle, a super-hawkish Fed, rising rates across the globe as central banks have been tightening policies to rein in inflation, risk-off trade sentiments and a global market crash.

The S&P 500 and the Nasdaq have entered into correction territory this year, with recessionary fears flaring up. The Fed has started rate hikes and has enacted a 150-bp rise already, which has caused recessionary fears. SPDR Gold Shares (GLD - Free Report) is flat this year, while iShares 20+ Year Treasury Bond ETF (TLT - Free Report) has lost about 24%.

Against this backdrop, below, we highlight the top ETF stories of the first half that caused the market crash this year.

Russia-Ukraine War & Commodity Rally

The year can be remembered because of the start of the Russia-Ukraine war. Notably, both countries are commodity-rich and the war has sent prices for energy, grains, and metals surging. Elements Rogers International Commodity Index-Energy Total Return ETN (RJN - Free Report) and Invesco DB Commodity Index Tracking Fund (DBC - Free Report) have gained about 67% and 33%, respectively, this year.

Oil Price Rally

The coronavirus vaccine rollout is gradually helping to control the spread of the outbreak across the globe. This is helping in economic reopening and boosting oil demand. Factors like easing Omicron variant concerns, supply shortages, and geopolitical tensions in Eastern Europe and the Middle East have thus boosted oil prices this year. United States Oil Fund, LP (USO - Free Report) has advanced 50% this year and United States Brent Oil Fund LP (BNO - Free Report) is up 56%. Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) has gained 37%.

Inflationary Pressure

U.S. inflation is hovering around a 40-year high. The euro zone inflation is also red-hot. It appears that higher inflation is not fleeting. Supply-chain issues are causing this massacre. A rise in Covid cases in China and the resultant lockdown made the matter worse.

Fast Fed Rate Hike

To contain the red-hot inflation, central banks are tightening policies. The Fed had enacted three rate hikes so far this year and pushed through a total hike worth of 150 basis points. Such steep rate hikes flared up inflationary worries and resulted in a flattening yield curve. The yield curve has inverted several times this year. Simplify Interest Rate Hedge ETF (PFIX - Free Report) and FolioBeyond Rising Rates ETF (RISR - Free Report) have added about 64% and 30% this year, respectively, due to rising rate worries.

Tech Slump

Technology Select Sector SPDR Fund (XLK) is off 23% this year. Rising rate worries have dampened the appeal for stocks that rely on easy borrowing for superior growth. Technology falls in this category. In any case, tech stocks are guilty of overvaluation (read: Cathie Wood Sees a Fast Recovery in Tech ETFs: Is It Possible?).

Volatility & Defensive ETFs Rule

As the global markets crashed, volatility ETFs ruled. iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX - Free Report) has had a great year so far, having gained about 25%. If the volatility level is this high, defensive ETFs would gain. AGFiQ US Market Neutral Anti-Beta Fund (BTAL - Free Report) has ticked up 16.3%.

Safe Havens Not Safe Anymore

Historically, safe-haven assets like the U.S. dollar, gold, treasury bonds and the Japanese yen have provided some protection during periods of immense market turmoil, but this year is just different. Though the U.S. dollar ETF UUP">(UUP gained 8.4% this year on a hawkish Fed, other safe assets let down investors. A rising greenback did not allow gold to glitter this year and the yen could not gain against the dollar because of the policy differential in both countries (read: Did Safe Haven ETFs Protect Your Portfolio from Market Turmoil?).

Struggling China ETFs Beat the S&P 500 Finally

China ETFs were hit hard earlier in the year due to stringent regulatory scrutiny along with tight COVID-control measures and the resultant lockdown. Chinese tech equities started rebounding in late April as the nation’s top political leaders planned on Friday to boost economic stimulus to promote growth. There could also be an easing of the continued clampdown on tech firms. iShares MSCI China ETF (MCHI - Free Report) is off 13.5% this year, beating the S&P 500, at the time of writing (read: Is Bull Market Approaching? ETF Areas to Bet On).

(NOTE: We are reissuing this article to correct a mistake. The original version, published earlier today, June 28, 2022, should no longer be relied upon.)

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