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Monthly Market Commentary

December 2022 Market Commentary

By January 5, 2023January 9th, 2023No Comments

Please find our most recent market review below. We hope these perspectives are valuable to you.

– The AdvicePeriod Team

2023 Outlook

Goodbye TINA (There Is No Alternative)

December 2022 Market Recap

Key Observations

  • Our capital market forecasts increased across most asset classes, most materially in fixed income, given the change in yields compared to 2022.
  • The three themes we see driving the market, persistent volatility, moderating inflation, and a bear market bottom, will come to life over different time periods in 2023 and beyond.

Our investment views are based on a simple idea: As facts change, so may our outlook. The last few years have been an interesting period for this ethos, as our annual outlook is beginning to feel like a game of ping-pong, oscillating between bulls and bears, as the environment shifts around us. Our 2021 outlook discussed optimism as the proverbial economic doors swung open as COVID eased. Our 2022 outlook moved in the other direction, calling for volatile markets based on (among other factors) persistent inflation, the Federal Reserve stepping on the economic brakes and market valuations and expectations set for perfection. In this outlook, Goodbye TINA (there is no alternative), we find ourselves on the other side of the market pendulum, seeing greater opportunity in 2023, albeit amid a period of considerable uncertainty. Our outlook is tempered with humility and pragmatism, recognizing the future remains uncertain, as it always has. However, as the market dynamics have changed so have our opinions, and we are excited to share our view for 2023 and beyond.

Source: Horizon Actuarial Services, LLC – August 2022, expected returns based on 10-year market assumptions.

IMPORTANT: These probabilistic return assumptions depend on current market conditions and, as such, may change over time. The likelihood of various investment outcomes is hypothetical in nature, does not reflect actual investment results and is not a guarantee of future results. Return assumptions = price growth + dividend and interest income. The information is intended for general information purposes only and does not represent any specific investment recommendation. There is no guarantee that any of these expectations will become actual results. For additional information on forecast methodologies, please speak with your advisor. The returns do not reflect the effects of taxes or fees.  Actual results will vary.  Refer to disclosures for additional information. 

2023 Themes

Rarely do market themes fit neatly into a calendar year, and 2023 is no exception. However, there are three distinct themes in markets today that we believe are likely to unfold over varying time periods. Therefore, our views are presented as if they were three acts of a play. The first act is one in which changes are just beginning and will have long-term implications yet to be fully appreciated. The middle act is one in which change is obvious, but the resolution is not imminent. In the final act, we believe events are more likely to take place in the near term.

First Act: Persistent Volatility

In the first act of a play, facts and circumstances are often revealed about a character that in time will shape their path, but careful attention needs to be paid to see how these early clues may shift their trajectory. We view the reversal of zero-bound interest rates and the unraveling of globalization as those pivotal moments leading to higher long-term volatility for both stocks and bonds.

The last 10+ years in markets have been unique compared to long-term history. One could describe markets since the global financial crisis as having low interest rates, low inflation and low growth coupled with maximum accommodation and maximum liquidity. These conditions have led to abnormally low volatility and have encouraged additional risk taking or TINA, the acronym for “there is no alternative” (to owning more equity). We believe that reversing some, but not all, of these conditions may produce higher structural volatility across multiple asset classes. Additionally, these shifts may also mean that investors expecting the playbook of the last 10 years to be the same for the next 10 may be disappointed.

Middle Act: Moderating Inflation

In the middle of the play, rising conflict is obvious, but the resolution has yet to take hold. These inflection points often leave the audience uneasy about the future. Inflation, and the Fed’s role in moderating it, is in its middle act. It is unlikely the curtain will drop on inflation in 2023 to the Fed’s target of 2%. However, that is not what is required for a market bottom or for the Fed to pause. We simply need the path to resolution to be illuminated. So, while inflation may moderate over the years to come, its pivotal moment in market sentiment may be closer at hand.

Source: FactSet, BLS, Fiducient Advisors calculations. As of Oct. 31, 2022. Data based on U.S. Consumer Price Index (CPI) All items, not seasonally adjusted.

The Shifting Inflation Dynamics chart above demonstrates that the impact of higher interest rates is just beginning to take hold with goods inflation moderating, but services picking up steam. Owners’ equivalent rent, the largest single component of the CPI basket at ~24% has not seen the same repricing as housing prices, which typically react faster. Shelter contributed roughly 30% to the most recent CPI print compared to only 18% a year ago. As monetary policy actions begin to affect prices on a lagged basis, we may see further moderations of inflation figures, which may allow the Federal Reserve to slow or stop the ascent of interest rates.

Final Act: Bear Market Bottom

In the final act, we fully grasp the conflict and perhaps even see what is necessary for resolution but are uncertain quite how it will play out. We believe we are in a similar place with markets bottoming. Let’s first build context around bear markets. Since 1950, the average pullback of 20% or more has lasted approximately 14 months; the longest of these was 31 months from March 2000 to October 2002. The shortest drawdown was less than two months in 2020. While there is no such thing as an average bear market, with history as a guide, our 11-month-old bear market is likely closer to its end than its beginning.

Now, how do bear markets typically unfold? The most common pattern is multiple contraction. This leads markets lower first, then the Fed ends a hiking cycle or begins an easing cycle and finally, earnings and expectations fall, creating a new base from which to build healthy forward expectations.

Index prices can be broken down into two primary components, earnings per share (EPS) and multiples. EPS is the economic value created by businesses and what investors are buying. Multiples are how much an investor is willing to pay for those earnings. Multiples are often driven by sentiment and are one of the first things reflected in prices. Corporate earnings, on the other hand, are backward-looking. Moreover, the impacts on businesses from higher interest rates and/or slowing demand takes time to appear in financial statements. Therefore, the typical pattern of bear markets is multiple contraction first, leading the market lower, followed by earnings.

This has certainly been the case in 2022. Multiple contraction has accounted for more than 100% of the pullback as earnings remain modestly positive so far in 2022. The question remains: What role will earnings play in the market bottoming this time around?

Dates do not reflect actual trough, but as of dates for September 20, 2022 for comparative purposes.
Source: Franklin Templeton, September 30, 2022

As shown in the table, there is a meaningful difference in the earnings impact in recessionary versus non-recessionary environments. Our expectation remains that if a recession takes place, it will be a modest and cyclically led recession rather than one driven by structural imbalances like during the Global Financial Crisis or an exogenous factor like COVID-19.

With that in mind, second and third quarter earnings are beginning to reflect a potential modest economic contraction. In fact, second quarter earnings ex-energy were down 4.0% (up 6.2% with energy) and third quarter earnings with 99% of companies reported show earnings ex-energy down another 5.0% (up 2.5% with energy) 1. Why ex-energy? Russia’s invasion of Ukraine propelled commodity prices up, pushing earnings for the sector up 137.3%1 year to date. This is unique to the energy sector and is not reflective of the rest of the market. All of this compares to expectations (as late as June of this year) of 10.8% earnings growth for third quarter 2022.2 There was a risk that these lofty expectations were a potential source of volatility as reality may not be as rosy, and that has proven to be the case. All in, earnings are beginning to reflect the economic reality of a moderating economy. This is a healthy step forward for a bear market bottom and again suggests we are nearer the end than the beginning.

Finally, what role does the Fed play in all of this? In our view, an important one, given the Fed focus this year. History has shown us markets tend to bottom after the Fed is done raising rates. Intuitively, this makes sense. If the Fed is raising rates, it is proactively looking to cool economic activity.

Source: Franklin Templeton, September 30, 2022

Yet given its dual mandate of price stability and full employment, the operative word is cool, not kill. When the Fed sees modest success in controlling inflation, it will stop or pause. However, the full effect of higher rates takes some time to work through businesses and markets. It is a bit like turning the shower handle to change the temperature: You have to wait a second to see if you got it right. Therefore, businesses are often in the middle of contraction when the Fed stops increasing rates. It is certainly conceivable that the market bottoms before the Fed officially stops as it tapers back from 0.75% moves to 0.50% or less. However, the market is less likely to bottom if the Fed is accelerating or maintaining its hawkish stance.

Source: FactSet, Fiducient Advisors analysis. As of Nov. 30, 2022. Dec. 31, 2021 = 100. Use of indices and benchmark return indices cannot be invested in directly. Index performance is reported gross of fees and expenses. Past performance does not indicate future performance, and there is a possibility of a loss.

The Corporate Earnings to Follow Multiples? chart above shows that price multiple declines often lead earnings, while bear markets unfold as is the case this year. Multiples have contracted, but earnings, at the surface, have remained modestly positive. However, if we dive deeper, strength in the energy sector (over 100% earnings growth so far in 2022) is buoying the rest of the market. As such, earnings across the rest of the market are already beginning to reflect a pullback similar to those seen in previous, non-recession led bear markets. This repricing helps set the stage for a bear market bottom.

Final Thoughts

2022 was the reset button for many markets. Exiting zero-bound interest rate policies, moderating inflation and repricing global fixed income and equity have all helped sow the seeds for a brighter outlook in 2023 and beyond. While we anticipate volatile asset prices will persist in the years to come, leaning into newly created opportunities may prove to be the right decision over the long term.

1 FactSet Earnings Insight. As of December 2, 2022
2 FactSet Earnings Insight. As of June 24, 2022


Indices used to generate capital market assumptions – for index definitions, please contact your advisor:

Core Fixed – Bloomberg Aggregate Bond Index, TIPS – Bloomberg US Treasury Inflation Notes Index, Long G/C Fixed – Bloomberg Long Government/Corporate Index, International Fixed – Bloomberg Global Aggregate ex-US Index, Emerging Markets Debt – Bloomberg EM USD Aggregate, High Yield – Bloomberg US Corporate High Yield, Global Equity – MSCI ACWI, US Large Cap – S&P 500, US SMID Cap – Russell 2500, Dev. Intl – MSCI EAFE, Emerging Markets – MSCI EM, Real Estate – Dow Jones US Real Estate Index, Commodities – Bloomberg Commodity Index, Infrastructure – Dow Jones Brookfield Global Infrastructure, Private Equity – Cambridge Associates US Private Equity Index, Hedge Funds – HFRI Fund of Funds.

Indexes are unmanaged and cannot be directly invested into. Past performance is no indication of future results. Investing involves risk and the potential to lose principal.

The commentary is meant for informational and educational purposes only and does not consider any individual personal considerations. As such, the information contained herein is not intended to be personal investment advice or recommendation.  Please consult a financial professional before making any financial-related decisions.

Much of this market commentary, except for the capital market assumptions, was written and provided by Fiducient Advisors, an unaffiliated company. The commentary was edited for use with our clients and prospective clients. The commentary represents an assessment of the market environment through December 2022. The views and opinions expressed may change based on the market or other conditions. The forward-looking statements are based on certain assumptions, but there can be no assurance that forward-looking statements will materialize.

AdvicePeriod is another business name and brand utilized by both Mariner, LLC and Mariner Platform Solutions, LLC, each of which is an SEC registered investment adviser. Registration of an investment adviser does not imply a certain level of skill or training. Each firm is in compliance with the current notice filing requirements imposed upon SEC registered investment advisers by those states in which each firm maintains clients. Each firm may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by an advisor with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about Mariner, LLC or Mariner Platform Solutions, LLC, including fees and services, please contact us utilizing the contact information provided herein or refer to the Investment Adviser Public Disclosure website ( Please read the disclosure statement carefully before you invest or send money.

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Fixed-income securities, such as bonds, interest rates and bond prices tend to move in opposite directions. When interest rates fall, bond prices typically rise, and conversely, when interest rates rise, bond prices typically fall.  When interest rates are at low levels, there is the risk that a sustained rise in interest rates may cause losses to the price of bonds. Bond investors should carefully consider inflation risk, liquidity risk, call risk, credit risk, default risk, etc. Greater risk, such as increased volatility, limited liquidity, prepayment, non-payment, and increased default risk, is inherent in portfolios that invest in high-yield (“junk”) bonds or mortgage-backed securities, especially mortgage-backed securities with exposure to subprime mortgages. Investment in non-U.S. and emerging market securities are subject to the risk of currency fluctuations and to economic and political risks associated with such foreign countries.

Domestic equity securities can be volatile. The rise or fall in prices takes place for a number of reasons, including, but not limited to, changes to underlying company conditions, sector or industry factors, or other macro events. These may happen quickly and unpredictably. Small-cap and Mid-cap stocks are generally subject to greater price fluctuations, limited liquidity, and higher investment risk than larger, more established companies.

Global and International investing generally involve increased risk and volatility compared to U.S. investments due to potential political and economic instability, currency fluctuations, and differences in financial reporting, accounting standards, and oversight. Risks are particularly significant in emerging and developing markets. Please consult with your financial adviser prior to making investment decisions.

Real Assets, such as but not limited to real estate, commodities, and infrastructure, can be volatile and may include asset segments that may have greater volatility than an investment in traditional equity securities. Such volatility could be influenced by a myriad of factors including, but not limited to, overall market volatility, changes in interest rates, political and regulatory developments, or other exogenous events like weather or natural disaster.

Alternative Investments, such as but not limited to hedge funds and private equity, can result in higher return potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in any alternative investment, you should consider your overall financial situation, how much money you have to invest, your need for liquidity, and your tolerance for risk. Alternative Investments are speculative and involve a high degree of risk. It is also important to be aware that alternative investments may be less liquid, use leverage, have less transparency, and charge higher fees, including performance incentive fees.

Does past performance matter?

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Major Market Index Returns

Period Ending 1/1/2023

Multi-year returns are annualized.

Mix Index Returns

Global Equity / US Taxable Bonds

Indexes are unmanaged and cannot be directly invested into. Past performance is no indication of future results. Investing involves risk and the potential to lose principal.

The Russell 3000 Index is a United States market index that tracks the 3000 largest companies. MSCI Emerging Markets Index is a broad market cap-weighted Index showing the performance of equities across 23 emerging market countries defined as emerging markets by MSCI. MSCI ACWI ex-U.S. Index is a free-float adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets excluding companies based in the United States. Bloomberg U.S. Aggregate Bond Index represents the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, as well as mortgage and asset-backed securities. Bloomberg Municipal Index is the US Municipal Index that covers the US dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds.