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Fourth Quarter 2022 Market Commentary

January 09, 2023
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The fourth quarter ended the year on a positive note with most asset classes rising during the last three months of the year.  During the quarter, domestic large cap stocks rose by +7.6%, domestic small cap stocks increased by +6.2%, international stocks were up +17.4% and domestic bonds rose by +1.9%.1  Despite the strong quarter, 2022 was still a challenging year as domestic large cap stocks fell by -18.1%, domestic small cap stocks declined by -20.4%, international stocks were down -14.0% and domestic bonds dropped by -13.0%.1  One notable observation from those returns was that international stocks outperformed domestic stocks for the first time since 2017. 

As most investors are aware, the main cause for the challenging environment in 2022 was inflation which dominated the headlines for most of the year.  We saw prices increase almost universally whether it be energy, food, core goods (ex. apparel, automobiles) or core services (ex. rent, travel, medical care).  Fortunately, the figures started trending in a better direction towards the end of the year with headline inflation only increasing 0.1% month over month in November to 7.1%.  This was the fifth consecutive month of neutral movement or decreases to the nominal rate from a high of 9.0% in June. 2 Despite the progress that we saw on the inflation front towards the end of the year, there is still more work to be done for inflation to get to the Federal Reserve’s long-term target of 2.0%. 

As we move into 2023, we expect the volatility that persisted for much of last year to continue into at least the first quarter of this year as the market continues to digest the seven interest rates increases that we saw last year (4.25% total) and how it will impact employment, market valuations and corporate profits.

We also expect the new year to bring new opportunities, some of which we have not seen in more than a decade.  Bonds experienced a historic loss last year (-13.0%), but it enabled yields to rise (given their inverse relationship) to levels not seen since early 2010.  As an example, ten-year treasury bonds at the end of the year were yielding 3.83% when twelve months ago were only yielding 1.50%.3 On the equity side, due to the drawdown last year, it allowed five of the six major valuation measures to fall below their 25-year average. 4 These reduced levels could prove valuable for rebalances or additional investments. 

We realize these continue to be challenging times but as mentioned in previous commentaries it is important to stay focused on your long-term goals.  We appreciate your trust and confidence in all of us at MSA Financial. Should you have any questions or if you would like to schedule time to review your portfolio or discuss the economic environment, do not hesitate to contact us.


1Market segment (index representation) as follows: Domestic Large Company Stocks (S&P 500), Domestic Small Company Stocks (Russell 2000) International Stocks (MSCI EAFE), Domestic Bonds (Bloomberg Barclays US Aggregate Bond Index), Growth Stocks (MSCI World Growth) and Value Stocks (MSCI World Value)

 2 https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/is-inflation-finally-slowing/

 3 https://fred.stlouisfed.org/series/DGS10

 4https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/ - Page 5

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