2022 Review - The Comeuppance

January 05, 2023

Source: Hedgeye

2022 Review

In recent conversations with clients, I have repeatedly heard the following comment when discussing investments in external accounts, outside our purview:

“I’m afraid to open the statements.”

I get it.  We’re human beings subject to emotional reactions that may not be in our best interest.  Besides, during the trailing 40-year bull market in the US bond market, the tendency to look past losses and “stay the course” has had its merits.

However, in 2022 that “set it and forget it” mentality didn’t work.

Further, our pending 2023 cautionary outlook will soon be posted, and the short version is this:  Keep your eyes on your fries.  More to follow…

The popular static portfolio of 60% Equities / 40% Bonds ended 2022 down -16.8% for the year1.  While the S&P 500 index was down over -19% the typical safety valve of Fixed Income, as expressed by the Bloomberg US Aggregate Bond Index, dropped -13%.2

The “Fed Put” of the past several decades, where the Federal Reserve (America’s central bank) comes to the rescue with fresh liquidity, was and (for now) is on hiatus.  Chair Jerome Powell appears determined to cement his legacy in the mode of his hero, the late Paul Volker, and look past deteriorating market & economic data to whip inflation back to a sustainable sub 3% rate. 

Separate Debate: which government-manipulated inflation measure will they use?

A war in Europe, what most would consider a “risk-off event” and, thus, bullish for bonds, wasn’t.  Hyper-inflation reared its head in the G7 economies for the first time in decades, sending interest rates higher as central banks globally tightened money supply.  This was on the heels of the greatest infusion of monetary and fiscal liquidity the world has ever seen in the response to CV-19 in the prior two years.

Like a weekend bender that results in a Monday morning hangover, the liquidity punch bowl of Fed policy and checks from Congress has led to the inevitable comeuppance for market participants as the nectar has run dry.

However, there were some bright spots and places to hide in 2022.  The ultimate “safe haven” asset, the US$ Dollar was one of the best performing assets, up double digits on the year.

Likewise, Energy stocks finally reaped the rewards of prior exploration and infrastructure spending, with ESG policies and an embargo of Russian products constricting the supply of fossil fuels as global demand continued to strengthen.

In fact, the broader Commodity complex saw a robust year, though ending 2022 on a down note as markets anticipate lower demand and a global recession.

We got to the peaks of 2021 on the back of cheap money, cheap labor, and cheap energy.  In 2022, we saw the beginnings of the reversal to all three themes.

Hopefully, when you open those year-end statements from other providers, you’re not confused by what you see.  If you are, click here and let’s chat.


The 2017 Annual Review of Psychology had an article on a study titled, “Learning from Errors”.  The conclusion was as follows:

"Experimental investigations indicate that errorful learning followed by corrective feedback is beneficial to learning…{and} particularly salient when individuals strongly believe that their error is correct:

Errors committed with high confidence are corrected more readily than low-confidence errors. Corrective feedback, including analysis of the reasoning leading up to the mistake, is crucial."

As investors, the implication is that we should focus our review on our high-conviction investments that went south.  We will always make mistakes, in life and investing.  The key is to evolve from them.  In fact, those may be the easiest errors to correct.

Here’s to the evolution.

Happy New Year!

160% Vanguard Total Stock Market ETF (VTI) / 40% Vanguard Total Bond Market ETF (BND)

2 Source: WSJ


This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.

 A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.