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Asset Class Reports
Canterbury Review: Fourth Quarter 2022

Markets Improve Amidst Cooling Inflation

  • Despite the challenging year, the U.S. equity markets made gains in the quarter, with much of the progress made in November. Improved GDP revisions, strong corporate earnings, and potential signs that elevated inflation could be cooling benefitted the markets.

  • European equities and emerging markets (EM) equities also rose in the quarter. In China, the markets benefitted from Beijing loosening its pandemic restrictions. Despite the Eurozone’s energy and economic concerns, equities rallied in the quarter, notably in energy, financials, consumer discretionary, and industrials.

  • Amid elevated inflation, the Federal Reserve raised the key interest rate twice, 75 basis points in November and 50 basis points in December to a range between 4.25% - 4.50%. Chairman Powell communicated that the pace of interest rate hikes is likely to slow given that inflation is showing signs of cooling, however, would keep rates at higher levels for longer.

  • The treasury yield curve increased on the front-end given the expected pace of interest rate hikes by the Fed, while the long end had little change over the quarter. As a result, the yield curve between 2-year and 10-year maturities inverted further. Investment grade (IG) spreads narrowed from 167 basis points (bps) to 138 bps over the quarter while high yield (HY) spreads narrowed from 543 bps to 479 bps.

  • Inflation, measured by CPI, remained persistently elevated over the quarter but slowed down to a year-over-year rate of 6.5% in December. CPI excluding food and energy, generally viewed as sticky inflation or Core CPI, decreased to a year-over-year rate of 5.7%. Indicators used to measure U.S. economic activity such as the ISM Manufacturing and Non-Manufacturing indexes, continued to decline over the quarter. As a result, concerns of a slowing economy increased.

To view the fourth quarter reports, click on the links below: