Markets “In a Nutshell” for January 3, 2023
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 0.20%, the S&P 500 was down 0.10%, and the NASDAQ fell 0.30%. Foreign stocks (MSCI EAFE) were flat. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.88%. (Data source: Wall Street Journal)
Unfortunately for investors, 2022 was a record-down year for stocks and bonds. For equity investors, this was the largest down year since 2008 and the 7th worst year since 1929. When we see drawdowns in the market as we did in 2022, the bond market is typically able to balance out investors’ portfolios. However, this year was a rarity in which bonds also had a historically bad year with this being the worst year ever for the Barclay’s U.S. Aggregate Bond Index since its inception in 1976 as it was down 15%. As we look to 2023 investors are hopeful that we can rebound and history shows that the two times since 1980 when a 60% equity and 40% fixed income portfolio fell 10%, the next year those portfolios rose 16%. Investors hope history can repeat itself but all eyes will be on the Fed and rates in 2023.
When Will the Fed Stop Raising Rates?
The Fed continued to raise rates throughout last year as their goal has shifted from full employment to getting inflation near their 2% target. The current market projections of the peak Fed Funds Rate are near 5.0% in May of 2023. This would mean the Fed only raises rates a couple more times early this year and then pauses. This would be good news for the market as it has been hard to predict exactly where the Fed will stop as very few people thought rates would be this high coming into the year. The 10-year Treasury yield has more than doubled throughout last year which is something we had not seen in a long time as rates had been very low since the financial crisis of 2008. Once the Fed does decide to stop raising rates, the market could begin to rally as they would finally have clarity around rates going forward.
How much was the S&P 500 down for the year of 2022? (Scroll Down for Answer)
Have a Great Week!
1) 19.4%, The S&P 500 had one of its worst years on record but was able to avoid the “bear market” territory for the calendar year just barely as the market rose 1% in the last 3 hours of trading on Friday, the final trading day of the year.