One of the best ways you could describe the 2022 year is with the word volatility. This occurred in the stock and bond market. We saw the S&P 500 down 19.4%, Nasdaq down 33.1% and the Aggregate Bond Index was down 13%. Also, international markets didn’t fare much better with an example of Emerging Markets being down 20.6%. Where does last year compare in history. Going back to 1928, there have only been 6 years in which the S&P 500 performed worse than it did in 2022. Moving forward, we expect some similar headwinds to play out in 2023. One of the biggest one that we have an eye on is the uncertainty of the Federal Reserve raising interest rates to fight inflation. Historically, the market has seen an average 26% return following the previous year close to 20% or more. Of course, there are no guarantees. We are hopeful that we will have a more favorable market in 2023, even with some of the headwinds that carried over from 2022.
Mortgage Rates and Inflation
It’s no secret, if you have been watching our vlogs that the interest rates have been challenging and rates have moved up drastically over the last year. We thought it would be helpful to discuss some topics, specifically what was the most telling of last year. The first is regarding Mortgage rates. The national average of the 30-year was an important thing to look at. It opened the year around 3.22% and ended the year at around 6.3%. To put this in dollar terms, that’s around $200 per month for every $100,000 of borrowing. So, for example, if you have a $500,000 home, that’s $1,000 a month for 30 years in additional cost. This is a topic that is really starting to affect people. From a market standpoint, we wanted to discuss the amount of negative yielding debt. This shows how extremely abnormal the last decade has been. Coming into 2022 there was $14.1 trillion negative yielding debt instruments around the world. What this means is that an individual is buying an investment that if held until maturity that they will lose money. This almost seems counter-intuitive for investing in general. That number is now down to zero. The transition was painful to get where we are now but looking forward, this feels like a more normal environment for investors.
Unemployment and The Fed
After a sluggish start to the year, we saw a big rally on Friday. For some that may have had the perception of receiving a good unemployment rate, but it really depends on how you look at it. Payrolls increased 223,000 which was a little more than expected. Unemployment is down to 3.5%, which is low. The labor force participation rate froze, which is a good sign. One of the main takeaways for us is how the market reacted to the wage numbers. Wages rose 0.3% month-over-month and under 5% year-over-year now. While this does hurt the working consumer with inflation still being high, the stock market seemed to take this in stride but why? The federal reserve cannot handle supply and demand but one of their jobs is to help with inflation. So, if wages start coming down or moderate, the Fed could stop raising rates as much as they have. We got some good information from ISM Manufacturing with service inflation decline and production falling. The thing we are keeping an eye on is how the Fed reacts.
Greg Powell, CIMA®
President and CEO
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Email Trey Booth here
Associate Vice President
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
Podcast: Play in new window | Download