By Steve Dinnen
Well, 2022 was a crummy year for investments. The Dow Jones Industrial Average was down 8.78%, but it was the market index standout, easily besting the S&P 500, off 19.4%, and the Nasdaq Composite, down 33.1%. For major indexes—and investors who abided by them—2022 was the worst year since 2008.
December alone was a rough time for stocks, capping off a final quarter that Kelly Flynn, chief investment officer at Des Moines-based Prospective Value Partners, characterized as especially painful.
“There were a variety of seemingly conflicting data points,” Flynn said. Though the fourth quarter began with a strong rebound, in November the Fed continued its hawkish turn, raising the Fed Funds rate by 0.75% for the fourth consecutive time. In December, shortly after the release of a more benign consumer price index reading that suggests that inflation had already peaked, the Fed eased the rate hike to 0.5%.
Which brings us to today. A near-consensus has developed that a recession will arrive in 2023. Many sectors are clearly slowing, especially real estate. And the yield curve on bonds is quite inverted, a strong signal of looming recession. With two consecutive quarters of negative real GDP growth in the first and second quarters, we actually had a recession in 2022, but revised third-quarter GDP growth was a robust 3.2%. Employment and other economic indicators have remained relatively strong. If we are indeed headed toward (another) recession, Flynn said will certainly be a strange one.