Economic Update 1-03-2023
- Economic data for the week included housing prices that continued a decline from peak levels, as well as a drop in pending home sales. Some regional PMI data improved, while jobless claims remained at a steady low level.
- Global equities were flat to down last week to close out 2022. Fixed income also fell back as interest rates ticked higher. Commodities gained ground last week, led by crude oil prices.
U.S. stocks ended flattish on net, in a typical low-volume holiday trading week, despite a few days of heightened volatility. Sector results were mixed, with gains in financials and energy; decliners were led by materials and consumer staples. Real estate also fell back with higher interest rates. For 2022, in keeping with corporate earnings results, the only positive returns originated from the energy sector (up over 60%). As expected in a negative year, defensive groups consumer staples, health care, and utilities outperformed with flattish results, while ‘value’ generally outperformed ‘growth’ by a substantial degree, with minimal losses for the former and a substantial bear market in the latter. Real estate also declined beyond the S&P 500, punished by higher interest rates.
Foreign stocks were mixed during the last week of the year, with developed markets down and emerging markets earnings positive returns, led by gains in China, as investors continued to optimistically view the recent easing of Covid restrictions and cheer the recent removal of quarantine requirements. Economic data there has also started to improve. While it was not largely publicized, foreign stocks outperformed U.S. for the quarter by about 10%, led by a recovery in Europe. While economic growth and inflation conditions certainly remain more challenged abroad, sentiment may have bottomed, with conditions moving from the ‘bad’ to ‘less bad’—historically, this has been a sweet spot for positive returns. For all of 2022, developed market foreign stocks fared slightly better than U.S. equities (even better in local terms, subtracting the negative impact of the strong U.S. dollar). Many might be surprised that returns in the U.K. led all other regions, despite the political and economic volatility there this year.
Bonds fell back last week as interest rates rose to end the year, and the 10-year treasury reaching its highest level in over a month as economic data and hopes for China have kept growth sentiment optimistic. U.S. treasuries lost slightly less ground, although all groups fell back. Despite a weaker dollar, foreign bonds declined to a lesser degree on the week. While a cruel reminder to investors, 2022 was a terrible year for traditional bonds, with the Bloomberg U.S. Aggregate Index down -13% (the worst calendar year in its nearly 50-year history). Areas such as floating rate bank loans fared better, with minimal declines. On the bright side, U.S. bonds fared better than foreign debt, which suffered from rising interest rates and a strong dollar (up 7% for the year), acting as a headwind on foreign returns, although it fell back by -8% in Q4 from even higher levels.
Commodities fared positively on the week, with minor gains in all segments. Crude oil rose almost a percent last week to $80/barrel; however, natural gas prices corrected by -10% on the week, as weather forecasts turned warmer. The winning streak for commodities continued in 2022, with gains of over 20% for the S&P GSCI Index. This was led by price gains in the energy sector (crude oil up 7%, but more so by distillates and natural gas), which offset price declines in more economically-sensitive industrial metals like copper.
|Period ending 12/30/2022||1 Week %||YTD %|
|Bloomberg U.S. Aggregate||-0.65||-13.01|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.