We will not shed a tear that 2022 is now in the rearview mirror.  Although, global equities posted gains during Q4, with the MSCI ACWI index rising 9.8%, the index finished 2022 down 18.4%  The S&P 500 gained 7.6% during the quarter and finished the year down 18.1%.  International developed stocks gained 17.3% in Q4, ending the year with a 14.5% decline. Despite the strength of the dollar in 2022, international developed stocks outperformed US stocks.  Emerging market equities rose 9.7% in Q4, finishing 2022 with a 20.1% decline.  Asian emerging markets were the best performing EM region during the quarter largely due to China’s support for the property sector, monetary easing and a reduction in Covid restrictions. Small-caps modestly underperformed large-caps during Q4 and for the 2022 calendar year. Value stocks outperformed growth stocks by a wide margin for both the quarter and for the 2022 calendar year.  The energy sector posted the strongest results in Q4 and finished the year up almost 65%.  The consumer discretionary and communication services sectors were the only sectors to post declines during Q4 and were the worst performing sectors for 2022.

Valuations multiples increased during the quarter due to the general increase in equity prices.  The trailing P/E ratio on the MSCI US Index rose from 18.3 to 19.4. We estimate that the equity risk premium over long-term Treasuries fell from 2.1% to 1.9%, mostly due to rising valuations.  International developed stocks remain more reasonably valued than US stocks.  Energy prices have moderated in Europe due to a relatively warm winter, which should help to mitigate inflation concerns.  Emerging market valuations remain more attractive than developed markets. The re-opening of China’s economy should drive an increase in activity.  Chinese officials also announced additional support for the property sector and new monetary easing policies during Q4.

 The Bloomberg Aggregate gained 1.9% during the quarter.  Treasuries gained 0.7%, lagging corporate bonds which gained 3.6%. The yield curve shifted higher at the short end of the curve, but otherwise saw modest changes during the quarter.  The 3-month yield rose 109 bps, while the 30-year yield rose 18 bps.  Credit spreads on investment-grade corporate bonds fell 29 bps during the quarter to 1.3%, which is roughly 17 bps above the long-term median level.  High yield bonds gained 4.2% during the quarter, as credit spreads fell 84 bps to 4.7%.  High yield spreads are 7 bps above the long-term median level of 4.6%.  Local currency EMD gained 8.5% during Q4.

In December, the Federal Reserve raised rates by 50 bps following 4 consecutive 75 bp increases (in addition to 25 and 50 basis point moves implemented earlier in the year).  This brought its policy rate to 4.25% – 4.5%.  The Fed’s December dot plot suggests another 75 bps of tightening in 2023, while the market is pricing in more modest tightening.  US inflation breakeven rates rose during the quarter, with 10-year inflation breakeven rates rising from 2.15% to 2.3%, slightly below the Fed’s target of 2% PCE (roughly 2.5% CPI).  Overseas, most other central banks also raised rates, including the ECB and BOE.  The notable exception was China, where easing measures were announced.  The BOJ kept rate targets unchanged, but surprised markets by widening the band around its yield target.

CAR202301274Q22MR

[1] The information found in this document was derived from Mercer, The Wall Street Journal and InvestorForce. While we believe these data sources and information to be reliable, its accuracy and completeness are not guaranteed. The views contained in this presentation represent the opinions of GYL Financial Synergies, LLC as of the date hereof unless otherwise indicated. This and/or the accompanying information was prepared by or obtained from sources GYL Financial Synergies, LLC believes to be reliable but does not guarantee its accuracy. The report herein is not a complete analysis of every material fact in respect to any security, mutual fund, company, industry, or market sector. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance does not guarantee future results. CAR202301274Q22MR