Market Highlights: 2023 Q1

The economy

In 2022, financial markets were driven predominantly by high inflation and the Federal Reserve’s attempt to slow inflation by raising interest rates. Inflation is a measure of how fast the prices of goods and services are increasing and high inflation especially hurts people on fixed incomes because they can purchase less with their money. After years of very low inflation (near or below the Fed’s 2% target) multiple factors such as the pandemic, global supply chain issues, the Russian invasion of Ukraine, and the many years of “easy” monetary policy to aid in the recovery from the Great Recession combined to make inflation reach high levels (above 6%) and remain elevated for a long time (dispelling the theory this inflation was transitory)1. The Fed has attempted to bring inflation down by raising the overnight lending rate range from 0.00-0.25% to 4.25-4.50% over the course of 20222. As we enter 2023, the economy is beginning to show some signs that inflation has peaked, but the extent and duration of the Fed’s moves in their pursuit to bring inflation back down to their target is the subject of much debate which we expect to be a main driver of financial markets in 2023.

12-month percentage change, Consumer Price Index, All items less food and energy
Note: Shaded area represents recession, as determined by the National Bureau of Economic Research.
Source: U.S. Bureau of Labor Statistics

The Stock Market

The S&P 500 dropped 18.11% in 2022, which was just the third negative year in the last 20 years3. The situation looked even more bleak for certain areas of the market as the technology, consumer discretionary, and communication services sectors lost 31.55%, 35.52%, and 40.34%, respectively4. It’s an important reminder that the stock market can and does go down from time to time. At times like these, it’s helpful to take a long-term perspective and keep in mind that despite the current bear market and the Great Recession, the S&P 500 has returned an annualized 9.79% over the last 20 years5.

S&P 500 Total Return index (2003-2022). Source:

The bond market

While the stock market gets a lot of attention, it’s the bond market that had a truly bad year by historical standards. Before 2022, the worst return of the US Aggregate Bond index in the last 20 years was -2.02% in 20136. That low was surpassed in spectacular fashion by 2022’s 13.01% loss7. Certainly, conservative-minded investors who invest in bonds for their predictable cash flows and modest volatility are unaccustomed to this level of drawdown. The flip side of such a bad year for bonds is that interest rates are a lot higher moving forward. The 5-year treasury note finished 2022 at 3.99% and investment grade corporate bond yields tend to average 1-2% higher than treasury bonds8. Just as with the stock market, it’s important to maintain a long-term focus as the bond market has returned an annualized 3.10% over the last 20 years despite its significant decline in 2022.

Barclays US Aggregate Bond index (2003-2022). Source:

A look ahead…

It’s human nature to react emotionally to bad years for financial markets, even if they are few and far between. Keep in mind that your financial path may be bumpy at times but that’s no reason to take an unwarranted turn. That’s why we take a disciplined approach to managing your portfolio’s risk and make investment decisions for the long term

Your portfolio should be built with your personal comfort level of risk in mind. During your annual review, we’ll show how your portfolio performed relative to the markets and confirm your appetite for risk. Please call our office if there are big changes in your life or if you’d like to review your portfolio sooner. And as always, we’ll continue acting on investment opportunities as we see them and helping ensure you are on your way to achieving your goals.

Check your inbox for future Market Highlights as we work to keep you informed about various investing topics and demonstrate our investment strategies to protect and grow your wealth.



Michael T. Abram, PhD, CFA
Principal & Portfolio Manager

Sources and Disclosures

3Data from based on the S&P 500 Total Return index
4Data from based on Morningstar US Technology Total Return index, Morningstar US Consumer Cyclical Total Return index, and Morningstar US Communication Services Total Return index
5Data from based on the S&P 500 Total Return index
6Data from based on the Barclays US Aggregate Bond index
7Data from based on the Barclays US Aggregate Bond index
8 and

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