Fourth Quarter 2022 Market Commentary

U.S. Gross Domestic Product (GDP) rose at an annualized pace of 3.2% in the third quarter, a reversal from a decline of 0.6% in the second quarter. U.S. GDP’s incline benefitted from an increase in exports, consumer spending, nonresidential fixed investment, and government spending. The ‘advance’ estimate for fourth-quarter GDP will be released on January 26. Nonfarm payrolls rose by 223,000 in December as the unemployment rate declined to 3.5% and wages grew at an annualized rate of 4.6%. Meanwhile, consumer confidence improved in December following back-to-back monthly declines, driven by favorable views on the economy and job market.

Core CPI, which excludes food and energy prices, rose by 5.7% in the 12 months through December, with a 0.3% increase for the month. Headline CPI, which includes all items, rose by 6.5%, from a year ago. This annualized pace is lower than it was for the 12 months through November, led by a sharp decline in gasoline prices. Inflation continues to exceed the Fed’s long-term target of 2%. The Fed approved a 0.5% rate hike in December following four consecutive 0.75% rate hikes in 2022. Despite this slowing in pace of rate increases, no Federal Open Market Committee members have indicated that they expect rate cuts in 2023, while the markets have priced in a possibility of a small reduction in rates by the end of the year.

The Bloomberg U.S. Aggregate Bond Index rose 1.9% in the fourth quarter, as all major sectors provided positive returns. The emerging markets debt and developed international bonds were the leading sectors, up 7.4% and 7.0%, respectively. Treasuries and 3-month T-bills were the laggards, up just 0.7% and 1.1%, for the quarter. The yield on the 10-year Treasury note, 3.88%, ended the fourth quarter below the 2-year yield, 4.41%, while the 30-year Treasury bond ended the quarter with a 3.97% yield.

The S&P 500® was up 7.6% in the fourth quarter, a turnaround after experiencing negative returns for the first three quarters of 2022. The energy and industrials sectors were the largest positive contributors, up 22.8% and 19.2%, respectively. The consumer discretionary sector got hit the hardest, down 10.2%, followed by the communication services sector, which was down 1.4%. Value stocks outperformed growth stocks across the capitalization spectrum, though all styles experienced positive returns. The forward P/E for the S&P 500® ended the fourth quarter at 16.7x, just below the 25-year average of 16.8x.

U.S. equity trailed most developed international and emerging markets (EM) for the quarter. The MSCI World ex-USA Index, which includes developed countries, was up 16.3%, while the MSCI ACWI ex-USA Index, which includes developed and EM countries, was up 14.4%. EM equities were up 9.8% as all major markets saw positive returns, led by EM Asia, which was up 10.9%. China ended 2022 down 21.8% for the year.

Commodities were the leading asset class in 2022, up 16.1%, as all remaining major asset classes suffered negative returns. Within the Bloomberg Commodity Index, the energy sub-index had the largest change in 2022, up 33.5%, led by low sulfur gas oil prices, which were up 77.9% for the year. Industrial metals had prices decline by 4.4%, while precious metals had prices increase slightly by 0.7% in 2022.

In this short video, you can hear from our principal, Scott Cameron, as he covers a 2022 market review.


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