by Kevin Gordon, Senior Investment Strategist, Charles Schwab & Company Ltd
Significant market disruptions in 2022 underscored important lessons for investors, not least being the principles of diversification, patience, and resilience.
Source: Schwab Center for Financial Research
January: Throwing darts
So (not very) close
Source: Charles Schwab, Bloomberg, as of 12/30/2022.
*Average forecast compiled by Bloomberg's survey of Wall Street strategists. Past performance is no guarantee of future results.
February: A rupture of epic proportions
The real loser, however, was the Russian stock market. You can see that the value of the MOEX Index of Russian equities was essentially cut in half right as Russia invaded Ukraine. Despite a brief trading hiatus, the index barely recovered any of its losses, closing down by more than 40% on the year.
Cold reception
Source: Charles Schwab, Bloomberg, as of 12/30/2022.
Data indexed to 100 at 12/31/2021. Dotted line represents 12/31/2021. Russian stock market data largely unchanged from end of February through March given the market's closure during that time. Past performance is no guarantee of future results.
March: Code Fed
Fed gets aggressive
Source: Charles Schwab, Bloomberg, as of 12/31/2022.
Fed funds rate uses effective rate from 1955-1971 and target rate upper bound from 1971-present. Soft landings defined as periods when the economy stops growing but doesn't enter recession. A basis point is one-hundredth of a percentage point, or 0.01%, so 50 basis points (bps) equals 0.5% and 75 bps equals 0.75%.
April: Anyone home?
Household vs. the establishment
Source: Charles Schwab, Bloomberg, Bureau of Labor Statistics, as of 12/31/2022.
May: No retail fairytale
Retail's tail between its legs
Source: Charles Schwab, Bloomberg, as of 12/30/2022.
Data indexed to 100 at 12/31/2021. Past performance is no guarantee of future results. All corporate names are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.
June: Cryptonite
Rolling in the deep
Source: Charles Schwab, Bloomberg, as of 1/1/2023.
Y-axis is truncated for visual purposes (max value was 2,310% in December 2017). Past performance is no guarantee of future results.
July: In a word: recession. In two words: no recession.
The committee assesses the health of four key indicators—industrial production, real personal income (ex-government transfers), payrolls, and business sales—to determine the state of the business cycle. Notice that GDP shows up nowhere in the official definition.
Nonetheless, it's still helpful to visually put the two-quarter argument to bed. The chart below shows every quarter in which U.S. GDP contracted, going back to the 1940s. The two exceptions are in 1960 and 2001, which are purposely circled and highlighted in red to show that, in those recessions, we didn't see two consecutive quarterly drops in GDP. Conversely, in 1947 and 2022, we did in fact see two consecutive declines, but the economy wasn't declared as in a recession. In fairness, the NBER could come out tomorrow and announce a recession started early last year, but the data argue strongly against that.
It's not what it looks like
Source: Charles Schwab, Bloomberg, as of 9/30/2022.
Grey-shaded areas indicate periods of recession. Yellow circles show periods where there were two consecutive quarters of negative GDP but the economy was not in recession. Red circles show periods when the economy was in recession, but there were not two consecutive quarters of negative GDP. Y-axis is truncated for visual purposes.
August: Back to same-day delivery
Yet, that didn't last too long. By August, the cost of shipping a 40-foot container from Shanghai to Los Angeles was cut in half from the peak, as shown in the chart below. Prices fell further from there, essentially erasing nearly all pandemic gains. Yes, many shipping contracts are still locked in at higher rates, but it's quite telling that the relentless decline in freight prices has not yet been arrested.
Dare to say it: transitory
Source: Charles Schwab, Bloomberg, as of 12/22/2022.
September: A dollar is all I need
Do you remember
Source: Charles Schwab, Bloomberg, as of 12/30/2022.
Data indexed to 100 (base value = 12/31/2021). Black dotted line indicates 12/31/2021, which is the date to which data are indexed. Past performance is no guarantee of future results.
October: Recession debate comes back
Another curveball
Source: Charles Schwab, Bloomberg, as of 12/30/2022.
Black dotted line indicates point at which both yield curve spreads dipped into negative territory. Past performance is no guarantee of future results
November: A token of no one's appreciation
FTT is N/A
Source: Charles Schwab, Bloomberg, as of 12/6/2022.
FTX filed for bankruptcy on 11/11/2022 and Bloomberg's vetted pricing providers are no longer consistently providing prices on the FTX Token. The FTT Token is the native token of FTX and allows holders to receive discounts on trading fees as well as other benefits. Red line represents the month of November 2022. Past performance is no guarantee of future results.
December: Santa skipped Wall Street
A December we don't need to remember
Source: Charles Schwab, Bloomberg, as of 12/30/2022.
Past performance is no guarantee of future results.
In sum
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