Q4 2022 Market Review
“The world is changed. I feel it in the water. I feel it in the earth. I smell it in the air. Much that once was is lost. For none now live who remember it.”
The Lord of the Rings: The Fellowship of the Ring
If you are a Lord of the Rings fan like I am, you will remember Galadriel’s monologue at the beginning of the trilogy. My wife Lindsay and I rewatched these movies recently and I was struck by the quote’s application to today’s investment world. As Sauron was insidiously plotting to make his resurgence to take over Middle Earth, so do stock investors have to face the resurgence of the heightened risk of recession as central banks fight high inflation by raising interest rates, a war in Europe captures headlines, and the Chinese Communist Party flip-flops its policy on Covid-19 lockdowns, wreaking havoc on global supply chains.
“Much that once was [a ‘normal’ investment environment in which organizations & individuals are penalized for taking on debt] is lost. For none now live who remember it.” Prior to 2022, investors spent thirteen years in an environment dominated by low global growth rates, low inflation rates, and low interest rates. Companies that were keen on borrowing to expand their businesses and grow their earnings (i.e. Growth stocks) were rewarded in the stock market. The stock prices of more disciplined firms that avoided debt and decided to take the “slower growth” route (i.e. Value stocks) languished on a relative basis. This dynamic was pitched as the “new normal” that we would be living with for the foreseeable future.
The economic backdrop in 2022 reminds us that paradigm shifts can happen and revert back to what was once normal. Portfolio allocations that worked in the decade before 2022 may not be the way of the future, and market participants would be wise to manage their risk carefully moving forward.
Q4 2022 Market Returns
News that U.S. inflation numbers were beginning to slightly decrease sent stocks higher in the fourth quarter as investors considered the possibility that the Federal Reserve may slow the pace of its interest rate hikes in 2023. Surprising to many, the MSCI EAFE Index (developed country international stocks) bounced significantly during a year characterized by economic and geopolitical turmoil in Europe. The table below shows each major asset class’s returns.
A Year Where Style & Location Mattered
As described earlier, the paradigm shift taking place changed style leadership in the stock market in 2022.
Growth stocks in the U.S., measured by the Vanguard Russell 1000 Growth ETF (VONG), declined 29% across the year, contrasted with U.S. value stocks, measured by the Vanguard Russell 1000 Value ETF (VONV), which only declined 8% in 2022.
International stocks in the developed world held up better than U.S. companies in 2022 as well. Diversification across global markets is something that Valley Peak Financial continues to champion as a key component to managing risk.
As we look to an unpredictable future, it is important to focus on your time horizon for liquidity needs to govern the level of risk you can afford to take in your portfolio.
SECURE Act 2.0
With the omnibus spending bill that passed in December came some changes in the tax law that may affect your financial plan. Among them are:
· The age at which some retirees are required to withdraw from their pretax accounts
· 529-to-Roth IRA transfers (with caveats)
· More flexible complex charitable giving strategies
As we meet this year to discuss your financial plan, we will talk about whether the new bill affects you.
With you for the long haul,
Carter Ellis, CFP®
Founder
Disclosures:
Past performance is no guarantee of future success. This material is for informational use only and should not be considered investment advice.
The opinions expressed are those of Guardian Wealth Advisors, LLC. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. Investing involves risk. Principal loss is possible.
Investment advisory services offered though Guardian Wealth Advisors, LLC D/B/A Valley Peak Financial. Guardian Wealth Advisors, LLC ("GWA") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about GWA's investment advisory services can be found in its Form ADV Part 2, which is available upon request. GWA-22-35
