Fed Up: Can the Fed Accommodate the Market?

2022 was a year of disappointment and negative surprises as economies faced the consequences of geopolitical turmoil and central banks fighting inflation. The result was a historic decline in global investment wealth. Statistically, 2023 is likely to be better.

Market Performance

A historic 2022 closed in a positive quarter with markets rising before falling in December. During the quarter, MSCI ACWI and global bonds rose by 9.9% and 4.6% respectively, putting an end to a threequarter losing streak. Still, 2022 will be remembered as a year characterized by elevated volatility and heavy losses across asset classes: ACWI -18.4%, S&P 500 -18.2%, US aggregate bonds -13% and global bonds -16.3%— marking the first time in modern history both stocks and bonds were significantly down in a calendar year.

After a more benign-than-expected inflation report in November, a more hawkish-than-expected Fed in December signaled they’re unlikely to cut rates in the near future but will slow the pace of future rate hikes. Consequently, the 10-year nominal yield ended the quarter at 3.88% (real yield at 1.58%), little changed from the last quarter, but 225 bps higher than the last year. The dollar fell sharply by 7.7% over the quarter but remains up 7.9% for the year.

International markets staged a comeback after a challenging first three quarters of the year. China announced a full reopening in December and a warm winter in Europe eased energy concerns. As a result, European equities (+21%), Asia-Pacific equities (+13%) and Emerging Market (EM) equities (+10%) all outperformed U.S. equities (+7%) this quarter.

Strategy Performance

All New Frontier ETF portfolios delivered positive returns in Q4, outperforming broad markets. Additionally, our Tax-Sensitive ETF portfolios once again distributed zero capital gains in 2022, consistently achieving tax efficiency throughout their eighteen-year track record. For income-oriented investors, the Multi-Asset Income portfolios provide more attractive sustainable yields – above 5% overall.