Cold Comfort

Investment Insights: Market Update
HIGHLIGHTS:
  • 2022 has been full of surprises and disappointments, with many factors remaining unresolved.
  • The overarching investment theme for this year has been the battle between the Fed and inflation.
  • Financial markets have been caught in the middle of that fight, with assets losing value in most areas.
  • Optimism remains as inflation shows strong signs of slowing, the Fed is positive on its growth results next year, and earnings forecasts continue to fly high.

If you had the feeling 2022 did not go as expected, you are definitely not alone. The year was full of surprises and more than a few disappointments. Investors, and the public, have endured much and encountered a range of challenges that—in some cases—remain unresolved. As we mark off the last few days of the year, we look forward to a fresh start to 2023. However, it is clear that issues won’t just disappear because of a new year—they will carry over.

Persistent inflation, driven by the snowballing effects of pandemic response efforts, supply chain disruptions, surging commodity costs, and a unique labor market, has emerged as a notable impediment to economic growth. After an aggressive year-long campaign against inflation, the Federal Reserve may finally be near its terminal rate and could hold rates steady to see what impact its policy changes will have on the US economy and inflation going forward. Markets were caught in the middle of the Fed’s struggle with consumer prices as higher rates eroded the value of cash flow assets and similarly drove down prices for stocks and bonds. While many countries have supposedly “moved on” from the pandemic, China remains a critical pillar for global growth, and COVID-related lockdowns and restrictions continue to be a central topic there. The war in Ukraine has lasted longer than many had anticipated and plunged parts of Europe into an energy crisis.

Ultimately, the market represents the total efforts of all participants to move forward. Despite the obstacles we’ve seen recently, there is still optimism for the future. Inflation seems to be finally showing signs of slowing and could be under control in the next few months. Meanwhile, Fed officials appear hopeful that positive growth is still possible next year even as skeptics are beginning to forecast a mild recession. Wall Street analysts are still holding strong with their earnings estimates next year, which—if true—could help bolster financial markets. Only time will tell how it all falls into place, but diversified portfolios and remaining adaptive to changing markets are key in this type of market environment.

Market Dashboard

Financial market data for various time periods covering global asset classes. Data as of December 20, 2022.

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Contributors

[Contributors Section]
Cyrus Charna
Investment Strategy Officer
Ben Baier
Lead Investment Officer
Wade Balliet
, CFA
Chief Investment Adviser