First Flash: Fourth Quarter 2022

Capital Markets Review

Economic Background

Volatility in the U.S. stock market continued in the fourth quarter as global recession fears remain high, inflation continues to be sticky, and U.S. existing home sales declined for the 10th consecutive month. November non-farm payrolls came in above estimates with an increase of 236k whereas the unemployment rate for November remained at 3.7%. The S&P 500 increased 7.56% in the fourth quarter of 2022, the Dow Jones Industrial Average grew 16.01%, and the Nasdaq Composite Index fell 0.79%.

After hitting a 40-year high in June, consumer price inflation (CPI) declined significantly in November with a print of 7.1%, compared to 7.7% in October. Core CPI, which strips out volatile food and gas prices, also slowed in November with a rise of 6%, down from a gain of 6.3% in October. For a fourth consecutive time, the Fed voted unanimously to raise target rates by 0.75 basis points at the November Federal Open Market Committee (FOMC) but slowed their pace in December, only raising rates by 50 bps.

Markets: Fourth Quarter 2022

Due in part to slowing CPI growth and a more hawkish tone from the Fed, stocks and bonds experienced intermittent rallies throughout the fourth quarter but ended the quarter down thanks to the strong labor market, faster-than expected economic growth, and looming inflation and recession fears.

• The S&P 500 Index, which measures large-capitalization stock performance, gained 7.56% in the fourth quarter.
• The Energy (22.81%), Industrials (19.22%), and Materials (15.05%) sectors logged the best returns for the quarter. However, the Consumer Discretionary (-10.18%), Communications Services (-1.38%), and Real Estate (3.82%) sectors lagged in the fourth quarter.
• The Russell 2000 Index, which measures small-capitalization stock performance, increased 6.23% in the fourth quarter.
• In the bond market, the Bloomberg U.S. Aggregate Bond Index increased 1.87% for the quarter. The Bloomberg U.S. Corporate High Yield Index grew by 4.17% in the fourth quarter. 
• For U.S. dollar-based investors, emerging markets, as measured by MSCI Emerging Markets NR Index, increased 9.70% in the fourth quarter. Developed international markets, as measured by the MSCI EAFE NR Index, grew by 17.34% during the quarter.
• The 10-year U.S. Treasury note yield finished the fourth quarter at 3.83%, unchanged from the end of the third quarter. Meanwhile, the yield on the 2-year Treasury climbed to 4.34% at the end of December, up slightly from 4.22% at the end of September.

Past performance, as shown, is no guarantee of future results.

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