ECONOMIC UPDATE
- January 27, 2023
- 12:00 pm
January 2023 | Monthly Economic Update
Source: Zephyr Style Advisor
December was a difficult month for equities, as was the year. US equities, as measured by the S&P 500, fell 5.8%, bringing the index’s return for the year to -18.1%, its worst year since 2008. International developed equities eked out a small gain of 0.1%, helped by a falling US dollar. Finally, emerging market equities also fell 1.4% despite strong gains from China on reopening potential. Contributing to December’s performance were themes seen throughout 2022: continued hawkish central bank policy to combat inflation, the ongoing Russia-Ukraine conflict, and lingering fears of a recession.
Sectors within the S&P 500 all saw declines in December. Defensive sectors, such as utilities, healthcare, and consumer staples, provided the least downside, whereas more sensitive and cyclical sectors, such as consumer discretionary and technology, declined the most. Energy was the only positive sector for the year, rising a staggering 65.7%. For equity styles, there was a significant disparity between value and growth, particularly for the year, with value outperforming growth’s 2022 performance by a spread in excess of 23%[i]. Growth’s struggles primarily can be attributed to the style’s greater sensitivity to rising interest rates and high starting valuations. Despite performing relatively better, value indexes were still in the negative for both the month and year.
Tip of the Month
Being able to think positively about yourself, your actions, and your abilities will help you navigate financial matters more effectively.
Moving to fixed income, international bonds outperformed domestic bonds for the month as the dollar fell. The global bond index was able to post a positive return of 0.5%. Long duration and lower-quality bonds were hardest hit, owing to continued interest rate increases and uncertainty around a looming recession. Short-term treasury bonds and municipal bonds were the positive indexes for the month.
Broad commodities retreated in December, declining 2.4%. Energy was the primary detractor for the index, while most other commodity sectors were positive. The positive standouts were precious metals, with silver leading the pack. Despite a strong year, the dollar continued its quarterly decline, falling an additional 1.9% in December as investors weighed the prospect of cooling inflation and declining growth. Lastly, REITs declined 5.0% as the housing market continued to slow and fears of a slowing economy grew.
The blended 60/40 index using global equities and global bonds returned -2.1% in December. Allocations to equities, REITs and commodities hurt, while bonds and gold helped. Expanding the view to 2022, commodities were the sole positive performer, owning much of that performance to the spikes in energy prices. And despite some of the worst returns in bonds on record, global bonds helped the 60/40 relative to equities and REITs in 2022.
Source: Zephyr Style Advisor
The Monthly Riddle
I have cities, but not houses. I have mountains, but no trees. I have coasts, but no sand. What am I?
LAST MONTH’S RIDDLE: I went into the woods and got it. I sat down to seek it. I brought it home with me because I couldn’t find it. What is it?
ANSWER: A splinter.
Important Information
This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation.
It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.
Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.
Bloomberg® and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, (collectively, “Bloomberg”) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies.