The key themes driving fixed income markets during 2022 were global inflation, aggressive Fed policy, and a growing prospect of recession. Employment and wage growth remained robust, but housing and demand weakened as the year progressed and the Fed’s policy actions began to take a bite out of the U.S. economy.
The ten charts below provide a broad view of economic and financial activity during the year.
Chart 1: No matter what measure of price growth you prefer, inflation ran blistering hot, requiring aggressive catch-up reaction from the Fed.
Chart 2: Interest rates rose sharply, and the yield curve inverted to a 40-year low.
Chart 3: Meanwhile, supply chain issues improved after 2021 glitches.
Chart 4: Home sales slowed due to higher financing rates
Chart 5: The jobs picture remained healthy, with unemployment below 4% and average hourly wages growing over 5%.
Chart 6: Oil prices hit over $120 per barrel in June, before finishing the year at $80. Average gasoline prices ended the year below $4.0 a gallon, providing some relief to consumers
Chart 7: There was nowhere to hide in financial markets except cash, with double-digit negative returns for all major asset classes.
Chart 8: Returns turned positive in Q4 for stocks and bonds as investors began to look past the rate cycle.
Chart 9: While bond market volatility spikes to above-Covid levels, equity volatility stays subdued.
Chart 10: Not surprisingly, spreads widen amidst a restrictive Fed and looming recession, and stage a comeback in Q4, but do not signal doom and gloom.
Bonus Chart A: As rate hikes started to impact reported numbers and the economic outlook, break-evens are now forecasting near 2% inflation by year-end.
Bonus Chart B: Crypto provided a lot interesting headlines but fortunately did not result in contagion to the rest of the financial system.
Data Sources Include: BondBloxx, Bloomberg, JP Morgan, ICE Data Services, Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve, US Census Bureau, CBOE, National Association of Realtors, NYSE.
Originally published 10 January, 2023.
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