Global equity markets had a pretty good fourth quarter – except for the tech names – and when the final Wall Street bell weakly tolled on Friday, December 30th, most of the major global equity markets were positive, notwithstanding the pullback seen during the month of December.
Despite the overall losses for the year, the DJIA and S&P 500 did manage the first positive quarter for the year, whereas NASDAQ – dominated by the tech names – managed to see its fourth consecutive quarterly loss – its first time since 2001.
For the fourth quarter of 2022:
The themes that drove market performance in the 4th quarter were consistent from previous quarters – inflation fears and hopes that the Fed might slow its pace and magnitude of rate hikes. And while inflation remained stubbornly high as readings of the CPI and the PPI were improved, the Fed did reduce its 7th rate hike magnitude from 75 basis points to 50.
The other themes were at odds with one another at times: rising consumer and investor confidence; rising food and gas prices, positive GDP numbers, a cooling-off of the housing market, better than expected manufacturing data; not-so-great corporate earnings, and continued supply-chain bottlenecks.
Further, we saw that:
Investors were very happy with the quarterly performance around the world, as all 36 developed markets tracked by MSCI were positive for the fourth quarter of 2022 – with most recording positive returns in the double digits. And for the 40 developing markets tracked by MSCI, 38 of them were positive too, with many emerging markets in Europe gaining more than 30%.
|MSCI FAR EAST||+13.65%|
|MSCI G7 INDEX||+8.59%|
|MSCI NORTH AMERICA||+6.65%|
|MSCI PACIFIC EX-JAPAN||+15.06%|
|MSCI WORLD EX-USA||+15.80%|
The overall trend for sector performance for the fourth quarter was good, as 9 of the 11 sectors advanced, with 6 advancing by double-digits.
Compare that to an ugly third quarter, where 10 of the 11 S&P 500 sectors dropped with only Consumer Discretionary staying positive. And as happened in each quarter last year, the performance leaders and laggards rotated throughout the quarter and the ranges were substantial.
Here are the sector returns for the third and fourth quarters of 2022:
|S&P 500 Sector||3Q2022||4Q2022|
Reviewing the sector returns for just the fourth quarter of 2022, we saw that:
At the end of the quarter, the Bureau of Economic Analysis reported that real gross domestic product increased at an annual rate of 3.2% in the third quarter of 2022. In the second quarter, real GDP decreased 0.6%.
Further: "In the third quarter of 2022, as real GDP for the nation increased at an annual rate of 3.2%, real GDP increased in 16 of the 23 industry groups for which BEA prepares quarterly state estimates.
Personal income increased in all 50 states and the District of Columbia in the third quarter, with the percent change ranging from 14.2% in Colorado to 1.4% in Kentucky."
In mid-December, the Fed announced a 50 basis points rate hike to the fed funds rate (its 7th rate hike in 2022) and then released the following statement:
"Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are contributing to upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks."
This seventh rate hike this year – and the second one in the 4th quarter – were some of the more predicted rate movement the markets have ever seen.
In addition, Wall Street is expecting the federal funds rate to move above 5% in 2023.
The Bureau of Labor Statistics announced the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in November on a seasonally adjusted basis, after increasing 0.4% in October.
In addition, over the last 12 months, the all items index increased 7.1% before seasonal adjustment.
With core prices – excluding the volatile food and energy costs – inflation was up 6.0%. Economists surveyed by the Wall Street Journal had expected an increase of 7.3% for headline CPI and 6.1% for core inflation.
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential construction statistics for November 2022:
"The Conference Board Consumer Confidence Index increased in December following back-to-back monthly declines. The Index now stands at 108.3 (1985=100), up sharply from 101.4 in November."
"Consumer confidence bounced back in December, reversing consecutive declines in October and November to reach its highest level since April 2022. The Present Situation and Expectations Indexes improved due to consumers' more favorable view regarding the economy and jobs. Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus. Vacation intentions improved but plans to purchase homes and big-ticket appliances cooled further. This shift in consumers' preference from big-ticket items to services will continue in 2023, as will headwinds from inflation and interest rate hikes."
Consumers' assessment of current business conditions improved in December.
Consumers' appraisal of the labor market was also more favorable.
Consumers were less pessimistic about the short-term business conditions outlook in December.
Consumers were more upbeat about the short-term labor market outlook.
Consumers were mixed about their short-term income prospects.
The U.S. Census Bureau announced that U.S. retail and food services sales for November 2022, were $689.4 billion, down 0.6% from the previous month, but up 6.5% above November 2021.
MONTHLY RETAIL SALES: PAST 20 YEARS
The University of Michigan released its index of Consumer Sentiment and reported that "consumer sentiment confirmed the preliminary reading earlier this month, rising 5% above November. Sentiment remains relatively downbeat at 15% below a year ago, but consumers' extremely negative attitudes have softened this month on the basis of easing pressures from inflation. One-year business conditions surged 25%, and the long-term outlook improved a more modest but still sizable 9%. Still, both measures are well below 2021 readings. Assessments of personal finances, both current and future, are essentially unchanged from November.
Year-ahead inflation expectations improved considerably but remained elevated, falling from 4.9% in November to 4.4% in December, the lowest reading in 18 months but still well above two years ago. Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification. At 2.9%, long run inflation expectations have stayed within the narrow, albeit elevated, 2.9-3.1% range for 16 of the last 17 months. While the sizable decline in short-run inflation expectations may be welcome news, consumers continued to exhibit substantial uncertainty over the future path of prices."