Despite the growing pessimism, equity markets posted decent gains in the last quarter of 2022, up 8% for the S&P 500 Index® and 17% for the MSCI EAFE Index.
But for all of 2022, US and international stocks posted the weakest one-year performance since 2008. The S&P 500 Index® dropped 18%, while growth stock indices fell 30%. Several market favorite stocks including Amazon, Meta (formerly Facebook), Netflix and Tesla, posted 50% plus declines during the year. International stocks declined as well, with emerging market stocks falling 20% for the year. We have mentioned the reasons in prior communications – excessive inflation and higher interest rates. As the year progressed, investors added a new reason to the market drop – the likelihood of a recession in 2023.
Fixed income markets were also no place to hide for the year, with 30 Year US Treasury Bonds falling
33%, marking the worst performance in 23 years. Only short-term US Treasury Bills rose modestly for the year.
Heading into 2023, we are monitoring two major risks: a policy error by the Federal Reserve in keeping interest rates high for too long and corporate earnings reports. But these risks are balanced out with some positives: inflation seems to have peaked, the midterm elections are over, market pessimism is high, China is re-opening and returns post recessions tend to be strong. Therefore, we are biased towards adding to equity positions cautiously.
We close our comments with a quote from Shelby Cullom Davis, Founder of Shelby Davis & Co.:
“You make most of your money in a bear market, you just don’t realize it at the time.”
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We wish you a very Happy New Year!
Your Pointe Capital Management Team