Q4 of 2022 was markedly different than the first three quarters of the year, with positive returns in major stock and bond indices, commodities, and real estate with a notable exception of Bitcoin, which was down another 15%+ for the quarter and over 64% on the year! Signs that inflation may be cooling has given investors some hope that The Federal Reserve may slow the pace of further tightening. In spite of ongoing concerns of the Fed’s inflation fight leading to a recession, corporate earnings and unemployment have remained strong. China’s relaxation of its zero-Covid policy boosted Asian markets while European equities also advanced. Commodities gained in the quarter, with industrial metals leading and natural gas falling as the mild winter has abated much of the concerns of a shortage in Europe. (Sorry Vladimir, NOT!)

In November, the US Consumer Price Index (CPI) fell to 7.1% year-over-year but continues around a 40 year high. Low unemployment, which perversely has been bad for the market when good numbers are reported, remained strong in December at 3.5%. The tight labor market and persistent inflationary pressures pushed The Fed to raise its key interest rate for the seventh consecutive time, but by “only” 0.5% at their last meeting (the previous four hikes were 0.75% each). In addition, The Fed continued their quantitative tightening program pace of retiring $95 billion per month from their $8.6 trillion balance sheet.

Bear Markets and recessions are normal. In my 30 years of investing, one observation I have made consistently during downturns is that they usually feel at their worst near the end. The challenge is that we don’t know when the end was until well after the fact. (Remember back to the 2008 bear market and how doomsayers continued to predict more pain for several years after the downturn). Instead of guessing what or when the next leg of gains or losses may occur, we focus on the current facts and do our best to make something positive of it. We have done extensive tax loss harvesting during this downturn, have reallocated accounts in a disciplined manner, and have encouraged clients to take advantage of higher interest rates and the higher expected future returns that stock selloffs present. At the risk of sounding like a broken record, all of these types of decisions are best made in the context of a sound financial plan.

If you would like to review your plan, get in touch. In the meanwhile, you can see the slides below for a review of Q4 2022.