Q4 Market Commentary

Q4 2022 Market Commentary

Every year on New Year’s Day, I look at Google Trends and reflect on what people searched for during the year.  For me, it provides time to reflect on just how many things happened during the year, how fast topics of interest changed, and what kind of information people looked for.  In 2021, searches were dominated by money related themes.  In 2022, we had a declining stock market, and when investments are down, typically there is less interest in money related items because people do not want to look at their statements to see how much money they lost. 

In fact, the only money related searches to make the top 10 list in 2022 were #7 “Mega Millions” and #8 “Powerball.”  This indicates to me that in a time of declining stock and bond markets, people hope to turn their fortunes around by hitting it big with lottery games.  Instead of looking at their financial statements, people turned to “Wordle” – the #1 most searched term in the U.S. 

Stocks and bonds both struggled early in 2022 with the Federal Reserve actively trying to reduce inflation.  The Federal Government spent unprecedented amounts of money to deal with the economic disruptions of COVID:

  • $8.3 billion – Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020
  • $225 billion – Families First Coronavirus Response Act of 2020
  • $2.2 trillion – Cares Act of 2020
  • $483 billion – Paycheck Protection Program and Health Care Enhancement Act of 2020
  • $920 billion – Consolidated Appropriations Act of 2021
  • $1.9 trillion – American Rescue Plan of 2021

Those federal spending programs kept a lot of people employed and many businesses solvent.  The economic theory was that the government spending would stimulate the economy… and it did!  The result of the spending increased demand for products and services, which increased prices, making it more expensive to purchase everything from eggs to yachts. 

The Federal Reserve has raised the Federal Funds rate from 0% to a range of 4.25% – 4.5%, and they have indicated that the rate will go higher in 2023.  These rate increases, and the expected increases to come, have meant a historic low for bond prices.  Investors choose bonds as the safer portion of their portfolio compared to stocks.  Generally, if the stock market is experiencing negative returns, bonds go up in value as the demand for safety increases.  In 2022 though, bonds were not the safe haven for investors that they normally are because of the rising interest rat­es caused by Federal Reserve intervention.  

Bonds represented by the Bloomberg US Gov/Credit 1-5 Year Index were down -5.5% for the year.  The Standard and Poor’s 500 was down -18.11% for the year.  Small companies represented by the Russell 2000 Index were down -20.44% for the year, and international companies represented by the MSCI EAFE Index were down -14.45% for the year.  If you follow the NASDAQ Composite, which is mostly composed of large US growth companies, that index was down -33.1% for the year.

Many clients are currently wondering if our economy is in or is going to move into a recession, and what that might mean for portfolio returns.  Of course, both questions are not predictable.  The chance we are experiencing a recession or there may be a recession soon is probably likely, but what that means for stocks and bonds is unknown.  We are in a period where sometimes seemingly bad news is good for the markets and good news is bad.  For instance, higher unemployment numbers being reported, which would indicate a recession, seems like it would be bad for stock prices, but if a company is cutting labor costs, that might increase profitability, which would be good for the stock price.

In these times, it is important to stay the course.  At Petersen Hastings, we have your goals in mind when we design your portfolio.  We are all using our education and experience to provide a diversified portfolio to help you achieve your goals.  

Thank you for your business, and we wish you the best for 2023!

Petersen Hastings