Financial assets suffered widespread losses in 2022 as a multitude of headwinds emerged during the year. Foremost among these was a series of aggressive interest rate hikes enacted by the Federal Reserve in a bid to quell the highest inflation readings in 40 years. Geopolitical developments and cooling global economic growth further clouded the investment landscape. Safe havens were few as nearly all asset classes experienced negative returns.
U.S. Equities: U.S. stocks declined in each of the first three quarters of the year before staging a moderate rebound in Q4. For the year, the broad-market S&P 500 index posted a total return of -18.1%. All S&P economic sectors lost ground on the year with the exception of energy and utility stocks (+65.7% and +1.6%, respectively). Rising interest rates were particularly detrimental to growth stocks (Russell 1000 Growth index, -29.1%), which vastly underperformed value stocks (Russell 1000 Value index, -7.5%).
International Equities: Foreign stocks fared slightly better than U.S. stocks in 2022 but struggled in their own right (MSCI ACWI ex USA index, -16.0%). Developed markets (MSCI EAFE index, -14.5%) outperformed emerging markets (MSCI Emerging Markets index, -20.1%), as the latter was dragged down by weakness in Chinese stocks. (All international stock index returns are quoted in U.S. dollar terms.)
Fixed Income: Bonds posted sharp declines in 2022 as the Federal Reserve raised the federal-funds rate target range seven times and interest rates rose dramatically across the yield curve. The Bloomberg Barclays U.S. Aggregate index declined 13.0% on the year, the steepest annual decline recorded since the index's inception in 1976. The yield curve remained inverted (shorter-term yields exceeding longer-term yields) throughout the second half of the year.
Commodities: Commodities were one of the lone bright spots in 2022 (Bloomberg Commodity index, +16.1%), largely on the back of strength in the energy complex.