Holiday Wrap Up

December 23, 2022

A look back at 2022 

The year in brief. Soaring inflation impacted consumers, businesses, and investors in 2022, and the Federal Reserve tried to rein it in with an aggressive cycle of interest rate hikes. Bulls and bears engaged in a tug-of-war on Wall Street, leaving the major benchmarks lower. Oil and gas prices rose dramatically. Mortgage rates climbed, throwing cold water on the housing sector. The economy fell into a first-half slump by some measures and looked robust by others. Congress weighed changing retirement account rules to help retirees and pre-retirees alike.

The U.S. economy. Yearly inflation, under 2% as recently as early 2021, hit 9.1% in June before falling gradually in the third and fourth quarters. Households saw prices of goods jump first, followed by services. The federal government’s core consumer price index, which removes volatile food and energy prices, was up 6.6% annually as of September – the largest annual increase in 40 years.1,2

At the start of November, the Federal Reserve raised the benchmark interest rate 0.75% for the fourth time in eight months to a target range of 3.75%-4%, as Fed chairman Jerome Powell told reporters that it was “very premature” to think about pausing rate increases. Borrowers paid a price, particularly home buyers – between May and November, the average interest rate on a conventional home loan went from 3% to 7%.3,4

Has the U.S. entered a recession? Looking at the gross domestic product, the answer seemed to be yes: the economy contracted at an annualized rate of 1.6% in the first quarter and 0.6% in the second, according to the Bureau of Economic Analysis. But does a recessionary economy generate more than 400,000 net new jobs each month, as recent Department of Labor reports show? The third quarter saw the economy growing again at a 2.6% pace.2

Inflation pressure, higher interest rates, wavering consumer spending, waning home sales, the war in Ukraine, and supply chain issues all did their part to hold stocks in check. The three major U.S. equity benchmarks all slipped 10% or more during the first ten months of the year, even with an October rally.5

The global economy. Inflation also strained households in other parts of the world. For example, consumer prices in the 19-nation euro area were up 9.9% year-over-year through September, a gain also influenced by Russia’s invasion of Ukraine and its impact on energy and food supplies.2

China’s economic engine, hampered by multiple coronavirus shutdowns this decade, struggled this year. By Q3, its economy was expanding at a 3.9% yearly pace, well under its growth target of 5.5%. President Xi Jinping, elected to a third term this year, has unnerved the country’s financial markets and business sectors with his “zero COVID” lockdowns of entire Chinese regions.6

WTI crude oil, which nearly settled at $120 a barrel in early March, was above $90 a barrel for much of the second and third quarters. As the most actively traded commodity on earth grew more valuable, retail gasoline prices increased and stayed high here and abroad.7

As for equities, MSCI’s EAFE index, which tracks developed overseas stock markets, was down more than 23% YTD on November 7. More than 20 other national stock indices had lost at least 10% for the year by that date.8,9

MSCI EAFE is an unmanaged index. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Looking back, looking forward. Some anticipate an economic downturn coming in 2023 – possibly mild, possibly brief. This view assumes that the Fed will be unable to tame inflationary pressure without causing a recession.2 

The labor market aside, the economy has been downshifting. The manufacturing sector is still growing, but at a gradual pace; recent consumer spending has been mediocre. On the cusp of fall, the Fed projected just 0.2% economic growth for all of 2022, and only 1.2% the next year.2,10 

Consumers have been resilient in 2022. Real consumer spending (i.e., adjusted for inflation) has advanced in every quarter since Q3 2020, which reflects real optimism in the face of rising consumer prices and the disappearance of household stimulus payments.  If consumer incomes continue to show strength, and if the Fed stops raising interest rates several months from now in view of moderating inflation (as futures markets have been assuming), then 2023 might be better economically than some prognosticators think.11,12

There could be a “Santa Claus rally” on Wall Street this year; there could also be a pullback. Regardless of what happens, give yourself the gift of patience this season and carefully consider any investment decisions. 

Have a great holiday season, and a wonderful 2023.


  1. Trading Economics, November 7, 2022
  2. U.S. News, November 1, 2022
  3. Fox Business, November 2, 2022
  4. NPR, November 2, 2022
  5. Wall Street Journal, November 5, 2022
  6. New York Times, October 24, 2022
  7. Trading Economics, November 7, 2022
  8. Wall Street Journal, November 7, 2022
  9. Barchart, November 7, 2022
  10. CFO Dive, October 19, 2022
  11., November 8, 2022
  12. CNBC, November 2, 2022