Zevenbergen Capital 2Q22 Perspective

August 16, 2022ZCI Blog

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Curious about Zevenbergen Capital’s investment perspective? Check out an excerpt from our quarterly client letter for our thoughts on 2Q22.

Zevenbergen Capital

2Q22 Equity Review & Perspective 

Public Enemy Number One – Inflation: Speculation regarding a Federal Reserve-induced economic slowdown to counteract the highest inflation readings since 1981 led to a swift and severe market drawdown in 2Q22. As the Fed’s policy changes took effect (increasing short-term interest rates/balance sheet reductions), concerns over the potential burden on corporate profits and consumer spending swelled. Skittish investors sought “safe-haven” assets (short-term government securities and cash), broadly eschewing faster-growth and higher valuation companies. The sell-off spared few asset classes, with both equity and fixed income investors experiencing historic negative performance during the quarter (across style, capitalization, geography, and maturity ranges). While some drivers of inflation and economic headwinds may prove more persistent, others have exhibited signs of improvement: supply chain normalization, lower commodity prices, cooling housing market, and small declines in the Personal Consumption Expenditures Price Index (the Fed’s preferred inflation gauge).

Frequently Asked Question: “When will stocks hit bottom?” While market observers perform rigorous historical data analysis for clues, the current period features several dynamics that, when combined, are unique from previous cycles: multi-sided inflation pressures (supply chain, wage, and commodity), COVID-19’s lasting impact on workplace and social norms, hawkish Federal Reserve actions reversing unprecedented stimulative conditions, and a prolonged conflict in Ukraine. Historically, economic and market disruptions have provided compelling investment opportunities for patient investors, but we humbly acknowledge the precarious path for a rebound in investor optimism (an important requisite for favorable growth style performance) amid elevated uncertainty and recession potential.