Morningstar's Take on Second-Quarter 2022

The second quarter of 2022 was challenging for investors. Stocks officially fell into bear- market territory. Bonds sold off, too. And cryptocurrencies of all types crashed. Rising interest rates and high inflation continued to stress markets, and many market watchers began talking about a possible recession.

Whether you're investing during your first or fifth bear market, an accumulator saving for retirement or someone who's already there, this quarter-end review is for you. The report brings together insights and perspective from our analysts and specialists about the markets, stocks, and funds.

Markets & The Economy

After Tough Second Quarter, U.S. Stocks Look Cheap We think now is the time to be adding judiciously to equities, not reducing them. Economic Outlook: The Near Term Looks Rough, but We're Still Optimistic We're more bullish than consensus on long-term GDP and expect inflation to fall much faster, too. 14 Charts on the Market's Second-Quarter Performance For just the second time in 40 years, bonds and stocks both posted losses for two consecutive quarters. How Much Worse Can It Get for Growth Stocks? In the second quarter, value outperformed by the widest margin since the dot.com bubble collapse as growth stocks suffered their worst losses since 2008. How Did the Largest Equity Funds Do in the Second Quarter? Investors in the most widely-held stock funds endured another down quarter. How the Most Widely Held Bond Funds Did in the Second Quarter Rising rates, growing credit concerns leave investors with widespread losses.

Stocks The Best- and Worst-Performing Stocks: Q2 2022 Investors go on the defensive, leading to big gains for packaged-food stocks. Valuations cut in half for these technology and retail stocks, including Lyft and Snap. For Tech Stocks, the Cloud Is the Silver Lining Amid broad macro troubles, high-quality software stocks are trading with a nice margin of safety.

Most Energy Segments Fully Priced, but Oil Services Has Some Bargains Russia-Ukraine war likely to keep oil and gas prices high. Selloff Leaves Strong Companies Looking Cheap in Communication Services The increasingly negative sentiment around online advertising, and Meta in particular, remains unwarranted. Lithium Stocks a Bright Spot in Basic Materials Market's decline leaves over half of the sector undervalued, trading at 4 or 5 stars. Biopharma Stocks the Most Undervalued in Healthcare The defensive nature and the relative safety of healthcare stocks are supporting the sector's outperformance. Industrial Stocks Tied to Housing Unfairly Punished Logistics and trucking shares should rebound through the rest of this year and next. Over 70% of Financial Stocks Undervalued But charge-offs and declining fee revenue should offset any benefits of rising interest rates. Sales of Alcoholic Beverages Dry Up, Leaving Some Bargains in Consumer Defensive Stocks With investors favoring the sector to help ride out the market storm, only 35% of consumer defensive stocks we cover are undervalued. As Long as Inflation Worries Persist, We Expect Utilities to Underperform Renewable energy continues to be a long-term boon for the sector. Fear of a Spending Pullback Sinks Consumer Cyclical Stocks, But Opportunities Exist There's still plenty of pent-up demand for travel and leisure stocks; quick-service restaurants also look relatively attractive. Interest Rates Will Continue to Pressure Real Estate Stocks Despite recent challenges, fundamentals still look strong and 70% of the sector is undervalued.

Funds

The Second Quarter in U.S. Equity Funds Deep-value funds showed some resilience, while aggressive-growth offerings crashed. Few Places to Hide for Non-U.S. Equity Funds in Second Quarter Value-focused and China-heavy funds fared best amid the global selloff.