Market Commentary Q4 | 2022
2022 brought a decidedly sharp end to the post-pandemic bull market. What markets originally thought would be a gradual central bank tightening campaign turned into the fastest series of rate hikes in history. Globally, central banks were forced to respond swiftly and forcefully to record-high inflation brought on by overly stimulative pandemic-related policy measures, stark supply and demand imbalances, and geopolitical shocks. The year was dominated by the shift higher in interest rates and its impact across all financial markets as risk assets repriced dramatically. U.S. equities suffered their worst performance since the Great Financial Crisis alongside a historically unprecedented selloff in fixed income markets. As a result, 60/40 portfolios generated their worst returns since the late 1960s. Looking to 2023, market participants have shifted their focus to economic growth. While a recession has widely been predicted, most are calling for a mild one, especially compared to the previous two. Regardless the strength, a recession would lead to a decline in corporate earnings that would ultimately lead equity prices lower. Elevated volatility is likely to persist as liquidity continues to be withdrawn and investors shape their interest rate expectations around incoming economic data.