2022- Fourth Quarter Review
2022 was a notable year in the financial markets, but not for anything positive. As you’ve no doubt read by now, it was the worst year since 2008 and that goes for all three major averages. The S&P 500 declined by 19%, the Dow Jones Industrial Average by 9% and the Nasdaq by 33%. From a historical standpoint, the bond market was the weakest of all. The Bloomberg US Aggregate Bond index fell 13% which is the worst year on record according to data going back to the 1970s.
That it is impossible to know what the market is going to do is a truism, but this year seemed to put a fine point on the idea. An article in the Wall Street Journal the last week of December described how Wall Street analysts from major firms like JPMorgan and Goldman Sachs came out with earnings estimates for S&P 500 companies over a year ago. Those estimates were spot on – in fact, more accurate than any year since 1995. Not one analyst from those firms, however, correctly predicted the bear market that ensued. Most called for a slight rise in stocks in 2022.
With history as a guide, eventually prices will follow earnings – a premise at the core of Penobscot’s philosophy – but the timing is not predictable because of factors like inflation, interest rates and current events.
Despite all this, the U.S. economy exhibited broad pockets of strength. Consumer spending on things like travel and entertainment roared back. The latest GDP growth was respectable at 3.2% annualized and the unemployment rate remained near historic lows at 3.7%.
A market like this is a good reminder of the importance of diversification. The difference in performance between the Dow Jones and the Nasdaq highlights how high-priced growth stocks sold off more aggressively than some of the slower-growth names in the industrial average. It’s important to have a balanced portfolio with exposure to all sectors of the economy.
For Penobscot, 2022 saw Covid fading into the background and our team began to spend more time in the office. The highlight of the year was moving to our new office on Federal Street. We have settled in and everyone is appreciating a conference room that fits all of us. It was good to see many of you at our open house last quarter and we hope to see more of you in person in 2023.
In the face of uncertainty, we will continue to recommend balanced, diversified portfolios constructed according to your own goals and objectives. We wish you a healthy and happy 2023!
Sources: WSJ, US Bureau of Labor Statistics & Bureau of Economic Analysis. Past performance is not indicative of future results.
