Recapping a Challenging 2022
Markets faced many challenges in 2022, including high inflation, historic interest rate increases, the war in Ukraine, and COVID lockdowns in China. Inflation was a key concern in the markets throughout the year, with the headline consumer price index reaching a 40-year high of 9.1% in June. High inflation prompted the Federal Reserve and its global central bank peers to aggressively raise interest rates, which was a sharp reversal in monetary policy from the extraordinary accommodative levels during the COVID pandemic. In the U.S., the Federal Reserve raised rates 7 times for a total of 425bp (100bp = 1%), which included the first 75bp rate hike since 1994 and an unprecedented series of four consecutive 75bp rate hikes from June through November.
This policy reversal caused both stocks and bonds to trade lower. From an investment perspective, there was “no place to hide” as central banks rapidly tightened monetary policy. The S&P 500’s decline of 19.4% in 2022 was its worst annual return since 2008. The market’s decline was mostly consistent throughout the entire year. Seven of the months in 2022 registered a decline in equities of at least 2.5%, while five of these months had declines of more than 5%.
Additionally, there have only been ten other years in which the S&P 500 has fallen 15% or more for the calendar year. To make matters worse, the Bloomberg U.S. Bond Aggregate produced its worst total return since 1976.
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