2022 has come and gone, and many investors seemed thrilled to turn the page and begin 2023 with a “clean slate.” After a tumultuous first nine months, the fourth quarter finally brought some relief. Beginning the quarter at annual lows, October welcomed a strong rebound with the S&P bouncing 8% and Dow 14%, while the Nasdaq lagged a bit, only climbing 4% for the month. The bounce continued through November as well with the S&P, Dow, and Nasdaq jumping 5.4%, 5.7%, and 4.4% respectively, notching back-to-back monthly gains for the first time since August 2021. Hopes of the “Santa rally” in December to continue the trend were dashed, as the S&P, Dow, and Nasdaq finished the month down 5.9%, 6.2%, and 8.75% respectively. Despite the December letdown, the market still finished the quarter well in the green, with the S&P gaining just over 7%.

In 2022, it was clear the Fed narrative controlled the direction of the market, as accelerated rate hikes in the face of historic inflation plagued the previously flourishing equity markets. All in all, the Fed raised rates over 400 basis points, including four straight record hikes of 75 bases points from June through November. Month after month, investors waited in vain for the Fed to change its hawkish narrative. Much cooler prints in the October and November CPI reports finally supplied the much-needed fuel for the long-awaited rally, one that hinged on the near-term peak in the Fed tightening cycle. The dovish spin surrounding these expectations came to fruition with a 50bp rate hike in December, down from the previous four hikes. While earnings in Q3 dragged and there was a significant number of negative earnings revisions, corporations continued to highlight a solid demand backdrop even in the face of heightened macro uncertainty, a welcomed sign amidst the chaos. China’s reversal of its zero Covid policy also added to the market positivity in the fourth quarter. On top of it all, the highly anticipated mid-term elections produced more of a whimper than a bang, which was considered a bullish development in the sense that a still-divided government was unlikely to generate broad new spending plans or wide-ranging reforms.

Ultimately, US equities finished 2022 with the worst performance since 2008, as the S&P sank over 18% and the Nasdaq lost a whopping 33%. Value significantly outpaced growth stocks, as many tech giants struggled in the face of the significant rise in interest rates. Furthermore, despite its 4th quarter gain of just under 2%, the U.S Aggregate Bond Index finished the year down 13%, capping its worst performance since 1977. Even the “to the moon” crowd was crushed as cryptocurrencies descended into a so-called crypto winter. Many crypto holders saw their values disappear, as even the price of Bitcoin fell from a November 2021 high of $68k to its December bottom of just over $15k. The Russian invasion of Ukraine continued, but while the war presented much headline risk in the early days, it has ceased to be a significant day-to-day concern for the market. This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

Though many long for a new year and new market, last year’s challenges will not reset. With inflation off its highs, there is still uncertainty as to how long it will continue to plague the economy before it hits its target of 2%. Companies will likely continue to wrestle wage pressure, higher input pricing, and possible demand fluctuations should the US consumer become less resilient. Furthermore, although rate hikes have slowed and will likely taper off altogether, it does not mean the end of the economic tightening. The Fed pushed back against the full pivot narrative with its relentless higher-for-longer messaging. Even with a Fed pause, the full effects of these rate hikes are yet to be felt. There is always the possibility that the Fed overtightened, leaving a soft landing completely off the table. Corporate earnings estimations continue to face downward pressure, as we await the results of Q4 earnings that just kicked off last week. It is unclear whether the last few months have been the makings of a traditional bear market rally that will once again lead into another leg lower in the market, or if the soft-landing campaign finally has some credence. Either way, we have to be prepared for both, as it is unlikely we have seen the last of heightened volatility. As we often say, we are not in the business of timing the market but rather building well balanced portfolios that are able to endure short-term disruptions and thrive in the long-term. Charlie Munger puts it best: “It’s in the nature of stock markets to go way down from time to time. There’s no system to avoid bad markets. You can’t do it unless you try to time the market, which is a seriously dumb thing to do.”

John Webb 

Financial Advisor 
Pinnacle Asset Management
Raymond James Financial Services 

Kidd Private Wealth Group 

This market commentary is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.