Q4 2022 Market Review

Stocks and bonds experienced some reprieve in the 4th quarter with gains following the worst year for stocks since the great recession and the worst year for bonds on record.  The falling of both stock and bond prices in the same year hasn’t been experienced for some time, but the Feds action to drive interest rates higher to fight inflation looks to be the culprit.  The reprieve in Q4 appears to be driven by the market anticipating an ending of rising inflation.  

For the year stocks and bonds were both down double digits, but in Q4 both were up.  International developed markets finished best, up 16.2% for the quarter, with some noted strength coming from Europe which looks poised to continue in Q1.  Generally, the growth (asset class) trade appears to be off thus far as value stocks outperformed their peers in all markets.

The bond market also saw some reprieve, with the US bond market up 1.9%.   The Fed is looking to continue rate increases but at a slower pace with the last few inflation readings appearing to represent signs of slowing inflation.  Yields are higher, but the Yield Curve across all bond yields is inverted and you can actually earn a higher interest rate on shorter-term bonds than longer dated maturities.  When this has occurred in the past it has been associated with a recession in the next few years.  Though the combination of our current environment: war, pandemic, supply and energy disruptions doesn’t appear to be easily replicated in history.  Or, said another way historical outcomes are not a guarantee for future outcomes.