Quarterly Market Insights – Fourth Quarter 2022
U.S. Markets
Stocks ended a volatile fourth quarter with a slight gain, which helped repair some of the damage since the beginning of the year.
For much of the quarter, sentiment was boosted by stronger than expected earnings, a deceleration in inflation, and a growing belief that the Fed may start to scale back on the pace of interest rate hikes. However, the upbeat mood soured in December as recession fears were rekindled by ongoing Fed rate hikes.
The Dow Jones Industrial Average (DJIA) gained 15% for the quarter, while the S&P 500 added 7 percent. The tech-heavy Nasdaq lagged, falling 1 percent.[1]
For the year, the S&P 500 fell 18.11%, the NASDAQ sank 33.10%, and the Dow Jones Industrial declined 8.78%. This was the seventh worst stock market downturn in history and the worst bond market ever.
An October Rally
The quarter opened on a volatile note as stocks reacted to both international news and domestic economic updates. An above consensus inflation report sent stocks to levels not seen since 2020 before mounting an impressive turnaround that by day’s end had witnessed the DJIA climbing 1,500 points from its midday low.[2]
The market stabilized as third quarter earnings started rolling in. Early earnings reports calmed some fears of deteriorating profits and pushed Fed policy concerns into the background.
November Follow Through
Stocks added to their gains in November based on growing investor optimism for a slowdown in future rate hikes. After the Federal Open Market Committee (FOMC) announced a 75 basis point (0.75%) rate hike at the start of the month, stocks retreated on hawkish comments by Fed Chair Jerome Powell in his post-meeting press conference. Markets staged a quick recovery, though, following a cooler than expected inflation number that ignited a powerful rally that lifted stocks to their biggest one day gain in two years.[3]
December Blues
Stocks opened in December by surrendering some of the October and November gains as recession fears and concerns over higher rates once again dragged on investor sentiment. The Fed announced another rate hike of 50 basis points, but it was the increase in the terminal rate (i.e., the rate at which the Fed stops further rate hikes) that elevated recession worries and closed the quarter and the year on a muted note.
In his press conference following the news, Fed Chair Jerome Powell suggested that the next hike may be a quarter percentage point increment. FOMC members lifted the terminal rate to between 5%-5.5%, up from their projection of 4.6% in September. [5]
Quarterly Sector Scorecard[4]
| Sector | Gain/Loss |
| Communication Services | 0.21% |
| Consumer Discretionary | -9.33% |
| Consumer Staples | 11.72% |
| Energy | 21.45% |
| Financials | 12.65% |
| Health Care | 12.17% |
| Industrials | 18.55% |
| Materials | 14.22% |
| Real Estate | 2.55% |
| Technology | 4.96% |
| Utilities | 7.62% |
What Investors May Be Talking About In January
In the month ahead, expect the market spotlight to fall on three key dates.
The first will come on January 12th with the December Consumer Price Index report. A continued slowdown in inflation may help lift some pressure on the Fed to raise interest rates.[6]
The second will be on January 26th with the initial reading of the fourth-quarter gross domestic product. A healthy number may be a relief to those worried about an imminent recession, or it could be viewed as a reason for the Fed to maintain its aggressive rate hike path.[7]
Finally, the FOMC will open its two-day meeting on January 31st. The forward-looking markets tend to focus on what Fed Chair Jerome Powell says about the direction of the economy in the post-meeting press conference.[8]
We Are Here For You
At Patriot, we will continue to focus on what we can control – asset allocation, costs, and having a plan.
We consistently communicate the importance of diversification through low-cost index funds, reasonable withdrawal rates, and not trying to time the market. These three variables are critical in the success of one’s financial plan.
We know the markets will recover, but it is still hard to endure these downturns. If you want to talk and review your allocation or your goals, we are a phone call or e-mail away.
[1] WSJ.com, December, 31 2022
[2]CNBC.com, October, 12 2022
[3] BLS.gov, November 10, 2022
[4] SectorSPDR.com, December 31, 202
[5] WSJ.com, December 14, 2022
[6] Finance.Yahoo.com, January 2, 2023
[7] Finance.Yahoo.com, January 2, 2023
[8] Finance.Yahoo.com, January 2, 2023