Monthly Market Commentary

These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

Latest Commentary:

December 6^th, 2022

Quick Summary and Our Letter

The equity markets continued their Q4 rally this month, assimilating in the results of the mid-term elections, small improvements in inflation metrics, and a still active Fed.  Possibly even more surprising is the strong performance of Non-US equity, both developed and emerging markets, with EAFE up more than 11% and EM Equity up 15%.  Not to be left behind, the bond markets were up across the board as interest rates fell towards the end of the month as Fed watchers forecast a slightly less aggressive policy stance in the coming months.  Unless you owned FTX or its related crypto, November has been a good month for most investors. 

Here are a few high-level comments on what occurred across the public investment markets during the month:

Overall 

• The S&P 500 was up 5.6% in the month, helping reduce the YTD negative return down to -13% from -24% at the end of Q3. 
• Bonds benefitted from the 40+bps decline in the US 10YR Treasury yield in the second half of the month.

Domestic Equity 

• November returns were strong across all segments of the equity markets. Economic data remained generally positive as expectations grew for less aggressive Fed actions due to a peaking of inflation. 
• Larger cap stocks outperformed smaller caps while value stocks were ahead of growth stocks.  The DJIA stands out as the best performing index in the last three months, benefitting from its diverse composition of stocks with less tech exposure.

International and Global Equities

• Foreign stocks significantly outperformed their US peers in November as a combination of more stability in economies and a shift in the Ukraine conflict provided opportunities for investors to buy at attractive valuations.
• Emerging Market equity returns topped the table, led by a 30% return in the Chinese index.  The volatility remains elevated as fluctuations in China's restrictive Covid policies strongly influence investor sentiment.

Fixed Income Markets 

• After peaking in early November, interest rates across the yield curve declined into the end of the month.  The yield on 10Yr Treasuries declined 40+ bps which spurred a rally across the bond market.  Higher quality bonds outperformed lower quality indicating investors remain cautious about potential credit issues in a slowing economy.

Specialty Markets

• REITs benefitted from the equity and bond market rallies while commodities trailed as oil prices declined modestly during the month. 

US Equity Sectors

• All sectors were positive for the month.  Consumer Discretionary was the laggard due to the weakness in the sector's largest constituents.  Value biased cyclicals sectors were the better performers in the month.

Dear Valued Investor,

Through all the challenges, newfound opportunities, and every high and low we’ve experienced during the last couple of years, it’s no surprise why we might be striving for more balance. Whether it’s about the markets and global economy or what’s happening in our local communities, the news we’re hearing on a daily basis has the potential to disrupt the balance of our lives. But with resilience, perspective, and the support of close connections, we can navigate through it all and regain our sense of equilibrium. Even after another dizzying year, as 2022 proved to be.

After two years of disruption due to the COVID-19 pandemic, we were searching for some kind of return to normalcy, while at the same time, still experiencing the aftereffects of the pandemic. Some of those aftereffects included the imbalances created by the fiscal, monetary, and public health policy put in place to address the pandemic—and the process of addressing those imbalances has been disorienting at times. If 2022 was about recognizing imbalances that had built in the economy and starting to address them, we believe 2023 will be about setting ourselves up for what comes next as the economy and markets find their way back to steadier ground—even if the adjustment period continues.

The Federal Reserve (Fed) spent 2022 aggressively fighting inflation by raising interest rates. In 2023, we expect the Fed to find that point where it can stop raising rates, as inflation starts to come under control. The Fed’s efforts to control inflation throughout 2022 pulled interest rates off of extremely low levels that were historically unprecedented. While that has been painful for bond investors, for the first time in a decade savers can now get an attractive yield, and 2023 will be more focused on how to potentially benefit from this significant shift. Stock market expectations may also see some realignment heading into 2023. The projections for certain market segments became too high in 2022 following a decade of low rates and a burst of extraordinary technology adoption. We expect 2023 will likely be more focused on the opportunities that may emerge from a market sell-off.

“Finding Balance” is our guide to how the readjustments in the economy and markets may impact you in the coming year. The disruptions may not be fully resolved and there may be more challenges to come, but progress toward finding balance is well underway. And when those disruptions hit the market, it can be hard to find our footing and stay the course. Those are the times when sound financial advice is more valuable than ever, as it helps us find our center, remember our plan, and stay focused on our goals.

Please let me know if you have any questions.

Enjoy the holiday season with your loved ones.

Scott Krase