As we usher in 2023, we say “good riddance” to the market mayhem of 2022.
“A year to forget” is how one of our research partners dubbed 2022. Despite a modest rebound for many asset classes during the fourth quarter, 2022 turned out to be one of the worst years on record for multi-asset portfolios. There were very few investment categories that posted positive returns for the full year. According to Ned Davis Research, it was the first time on record that both the S&P 500 Index and the Bloomberg U.S. Aggregate Bond Index lost more than 10 percent in a calendar year.
This means there was nowhere to hide. Both conservative and aggressive investors likely lost money. Some bond funds, normally considered the safer haven in a portfolio, were down double digits for the year as interest rates pushed higher. The good news is you might be earning a little more on your bond or money market yields.
Brett Lapierre, CFA cites stubbornly high inflation and aggressive rate hikes from most of the world’s central banks as two main reasons for the difficult year and weak performance across the financial markets. The Russia/Ukraine conflict also added to the volatility, although it helped energy-related assets post positive results for the quarter and year. China shutting down for much of the year hurt exports and supply chains.
“The U.S. economy showed more signs of slowing despite rebounding during the third quarter and likely seeing positive gains for the fourth quarter. The labor market remained one of the bright spots in the U.S. economy as the year ended, but the risk of a recession unfolding over the next 12 months remains elevated in my view,” says Lapierre.
During the fourth quarter, markets got a little reprieve with inflation data further improving and the Federal Reserve slowing down its rate hiking campaign. But the Fed has not quite finished raising rates yet. Nevertheless, interest rates were a little steadier during the fourth quarter than earlier in the year with the 2-year U.S. Treasury yield finishing at 4.41%, up 19 basis points on the quarter, while the 10-year U.S. Treasury yield finished at 3.88%, up 5 basis points on the quarter. For the year, yields were up 363 basis points and 225 basis points, respectively.
This is significant movement in the fixed income world where many retirees are invested. Designing custom portfolios this year will be crucial for investors, especially if you were able to tax-loss harvest last year. You have a clean slate to begin a new strategy in a new year that fits with your financial plan. Don’t wait to get in front of your advisor while the year is young.
Brett Lapierre, CFA, is Senior Investment Strategist for Mariner Wealth Advisors
Patricia Kummer has been a certified financial planner professional and a fiduciary for over 35 years and is Managing Director for Mariner Wealth Advisors, an SEC Registered Investment Adviser.