Ho-hum Holiday Finish.
The end of December marks the close of a rough month and year for the markets. Persistent inflation and aggressive rate hikes from central banks pummeled growth and tech stocks. Geopolitical events and volatile economic data also contributed to the unprecedented year across all asset classes. There was no place to hide as the volatility rocked stocks, bonds, currencies, commodities, and cryptocurrency. Of the past 95 years, there have only been five times—including 2022—that US stocks and 10-year treasury bonds were both down concurrently, and 2022 was the worst of them.
Stock Market
There was no Santa Claus rally to be seen this December as US stocks finished -5.8% lower for the month, and down -18.1% for the year. Growth stocks significantly underperformed value stocks this year as growth was down -29%, compared to value which was down only -8%. Foreign-developed stocks were the lone bright spot, up 0.11% for December, while finishing down -14% on the year. Emerging markets ended the month down -1.4% and -19.7% on the year.
Bonds, Rates, and the Fed
The US bond market didn’t fare much better as it finished down -0.45% for the month and -13% for the year. The 10-year treasury yield finished the year at 3.88%, marking one of the largest 1-year yield advances on record. 2022 also marks the second consecutive negative year in bonds, but the good news is that we have never seen three consecutive down years in the bond market…yet.
In its final meeting of the year, the Federal Reserve raised the fed funds rate an additional 0.50% to the range of 4.25%-4.50%, an adjustment from the four previous 0.75% moves. Jerome Powell made it clear that they are staying in the long fight to get back to price stability.
Outlook
As 2023 kicks off, the lagging economic data will begin rolling in for markets to digest. Concerns about an economic recession may be muted by the hopes for a Fed policy pivot. In any case, volatility will likely continue into the new year as investors eagerly await the data.
