The 4th quarter of 2022 offered a bit of respite to weary investors in 2022 due to positive pops in October and November, but December quickly showed no mercy as negative momentum kicked in and tempered any optimism of ending the year on an upbeat. The themes of 2022 continued during Q4 as volatility reared its ugly head with market interest rates moving up, from down, and equities moving down, from up.
We have become accustomed to the usual suspects of inflation fears, a hawkish Fed, rising market interest rates and the global geopolitical and economic consequences from the Russia/Ukraine war playing havoc with capital markets.
Though 2022 Q4 shows some “positive” quarterly total returns for the major asset classes, the results are far from inspiring and not necessarily indicative of an inflection point. Per the table below, the major asset classes showed Q4 returns that were “in-the-black”, but not by a wide margin and certainly not enough to compensate for the overall weakness we had seen over the entirety of 2022. For example, during Q4 the S&P 500 (IVV) was up +7.59% and core bonds (SCHZ) was up +1.68% but those asset classes were both down a LOT over all of 2022 at -18.16% and -13.17%, respectively! The weakness in bonds is historic; worst annual return ever!
My blog post on November 28 posited the thought, “Is the Bottom In?” In it, I showed three separate market bounces that naively foretold more market gains, but resulted in losses! Forecasting market returns is really HARD, but practically speaking is mostly a “conditional” game; if this, then that. If you luckily guess the conditions correctly, then maybe you will be lucky guessing market outcomes.
Per that blog post, themes that could change that could impact markets include: hawkish centrals banks fighting inflation, higher rates, tighter liquidity, weaker financial conditions suggesting downside risk to earnings and potential for severe recession, unattractive credit spreads, currency-induced sovereign crisis and escalation in Russia/Ukraine war. So, stay tuned!