For many, 2022 will be remembered as one of the most complex market environments in decades. Global markets came under pressure as inflation saw a resurgence worldwide, global central banks embarked on one of the most aggressive tightening cycles in decades, and Russia launched a full-scale invasion against Ukraine.
Within global equity markets, international developed markets outperformed both U.S. and emerging markets. The S&P 500 recorded its worst year since 2008 and its sixth down year since the turn of the century.
U.S. core bonds declined 13%, the worst year since the inception of the Bloomberg U.S. Aggregate index in 1976. Among the main U.S. fixed income asset classes, high yield corporate bonds performed the best while investment grade corporate bonds lagged. The one-two punch of declining stocks and bonds posed a headwind for diversified investors as the traditional 60/40 portfolio declined nearly 16%.
The silver lining of 2022 was that the reset in valuations should benefit longer-term investors. While stocks were off their lows and yields came down from the highs, our work suggests these improved starting points should lead to better returns for many asset classes. Yet, on a near-term basis, we expect choppy waters to continue given economic and earnings risk.
As we turn the page and begin the new year, we see three keys for investors in 2023 – remain defensive, remain tactical, and remain open-minded. To go deeper, please see our annual outlook.
A look back
- Global equities finished the week roughly unchanged. U.S. stocks fell for the fourth-consecutive week while international developed and emerging market stocks finished in positive territory.
- U.S. yields continued their upward march to end the year. The 10-year U.S. Treasury yield increased by 13 basis points (0.13%) while the 2-year yield increased by 11 basis points. The 2/10-year yield curve remains inverted by 55 basis points.
A look ahead
- The Federal Reserve’s (Fed) meeting minutes from December will be released on Wednesday. Investors will look for any clues about the magnitude and timeline of future monetary policy.
- Fed Governor Lisa Cook will give a speech on inflation on Friday.
- Economic releases: S&P Global U.S. & ISM Manufacturing, FOMC meeting minutes, Nonfarm Payrolls, Durable Goods Orders, and the Unemployment Rate.
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