2022 Year in Review
A Year of Ups and Downs
2022… this one pager from Avantis Investors says it all! It was a rough year with lots of ups and downs. This infographic reflects the S&P 500 (down 18.1% on the year) but most equity indexes traversed the same path. Broader US markets (Russell 3000 Index) were down 19.2%. International markets (MSCI ACWI ex USA) were down 16.0%. In fact, these three indices had their worst year since 2008. Moreover, the bond markets had their worst year ever with Bloomberg Barclay’s Aggregate Bond Total Return index down 16.3%. Traditionally, equities and fixed income move in opposite directions. But not in 2022. And, unfortunately for investors they both moved downward rather markedly. There were few places to hide for investors in public markets.
As you can read in our other blog, “Forecasting Follies”, it is very hard to forecast what the market is going to do. There are just too many unknowns. Take a look at these highlights from 2022. How many of these could we have predicted?
| January | Hopes of post-pandemic recovery are diminished as inflation data continues to roll in at unexpectedly high rates. The Fed suggests four interest rate hikes in 2022, only a few months after signaling their believe that inflation was transitory. (See our blog: “The Surprise of the Federal Funds Rate.”) We will find out later that “transitory” was not that “transitory.” |
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| February | Did anyone foresee the invasion of Ukraine by Russian and truly understand the impact this would have on energy prices and commodity prices? And the length of this conflict (which is still ongoing)? In the background, US debt passed $30T. |
| March | CPI posts over 8% (surprise!), the highest since the 1980’s and concerns arise that the Fed has acted too slowly and might have to move more aggressively on interest rates. Sanctions against Russia hit the commodity markets hard. |
| April | China locks down 180 million people for COVID concerns including Shanghai, the world’s largest container port, once again impacting supply chain. (Surprise!) |
| May | CPI continues at hot pace. Fed increases rates by 0.50%. We run out of baby formula! Supply chain concerns are heightened. (Surprise!) |
| June | CPI still continues at hot pace. Fed increase rates by 0.75%, which was unthinkable a few months before. (Surprise!) The market actually responds positively hoping that the worst is behind us and the Fed’s aggressive response would help. |
| July | At the end of the month, CPI continues at hot pace – 9.1% (Surprise!) - and the Fed increases rates again by 0.75%. Markets fear recession, companies start signaling concern about profit pressures (rising costs, consumers shifting to bargain products) and the market begins to decline. Oh yeah, housing prices begin to decline and home sales slow. |
| August | Even while Congress passed the Inflationary Reduction Act, comments at the Jackson Hole economic symposium and the Fed’s acceleration of quantitative tightening (reversing the COVID stimulation and easing) took any positive momentum out of the market. The summer rally was wiped out. (Surprise!) |
| September | While a monthly CPI decline of only 8.1% brought some hope and some market increases, these were erased with news of layoffs in the tech space (tech stocks continue selling off), possible rail strike, and another 0.75% Fed hike on 9/21. (A series of surprises!) |
| October | The market hits lows for the year early in the month, then begins climbing back. It was a quiet month as investors started looking at upcoming elections and the probability of a “red wave” and divided government – which traditionally has been a positive event for equity markets. |
| November | Despite no “red wave,” elections do give us a divided government and the markets continue moving in a positive direction. Another 0.75% increase by the Fed (11/2) is a positive this time as unemployment rate also creeps up. Is inflation finally getting under control? |
| December | As the year ends, CPI rate has dropped closer to 7% (still hot!) but there is some hope that inflation is being tamed. China eases COVID restrictions and the Fed only raises rates 0.50%. While markets tailed off in the final weeks as bitterly cold weather dampened holiday spirits (no Santa rally in 2022!), the S&P has recovered 7.8% from the September lows. Yet, ended the year down 18.1%. |
Operating Within the Unknown
Well, that is 2022 in a nutshell. News and global events caused the markets to go up and down over those 12 months. Interestingly, you could do this same summary for 2021, 2020, 2019, and all of history. Markets are constantly moved by the unknown and the market moves quickly when the unknown becomes known. We all would be better investors if we could know the unknown – but we can’t. What we can do is remember that the market has risks and we should only take on the risks that we can manage.
