U.S. markets declined during the month of December snapping a two-month rally. Recession fears remained a key overhang which ties into the narrative around downside earnings risks into 2023. Defensive sectors including utilities, health care, and consumer staples, outperformed while growthier sectors, such as consumer discretionary and information technology, were adversely impacted by higher 10-year Treasury yields. The Fed stuck to its higher-for-longer stance despite shifting the pace of rate hikes to 50bps after four straight 75bps hikes. Fed Chairman Jerome Powell reiterated taming inflation is still a priority as consumer and employment data remained resilient. Treasuries yields climbed across the curve with the longer end of the curve seeing the most pressure. U.S. equity markets finished the year with the worst performance since 2008 while bonds had the worst annual performance in history.
Globally, international equities outperformed U.S. equities over the month of December. The dollar continued its decline since its peak in late September, with its biggest declines against the yen and euro. Chinese markets rallied, returning over 5% after government officials began to ease their strict “zero Covid” policy. The gradual reopening could spur Chinese economic growth, potentially providing some support to global economic growth during 2023. In Europe, higher than expected energy reserves, sparked optimism during the 4th quarter. The peak in the U.S. dollar is likely to improve opportunities globally heading into 2023.
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