The first quarter of 2023 handed global investors much to digest. The year started with the erratic market performance of January and February, with the former witnessing broadly positive performance across most major asset classes and the latter generally the opposite. Then March’s banking system turmoil took center stage.
Following a notably strong start to the 2023 calendar year with broad-based gains generated across the major global asset classes and categories in January, financial market performance in February left much to be desired, as equities, bonds, and real assets posted overwhelmingly negative performance amid a steepening in the near-term implied Federal Reserve (Fed) policy path.
The positive performance momentum that developed across many global asset classes and categories in the fourth quarter of 2022 carried over into the first month of 2023, with investors embracing the potential for a Federal Reserve (Fed) soft landing amid cooling inflation, an economic rebound in the second half of 2022, and an ongoing robust labor market.
Despite a strong rebound in the first two-thirds of the final quarter of 2022, during which most major asset classes and categories enjoyed positive performance, December saw a return to the same weakness that global asset allocators had endured throughout much of the first three quarters of 2022.
Following October’s robust start to the fourth quarter, performance across the financial markets in November appeared notably strong, underpinned by the growing narrative of a Federal Reserve (Fed) “pause” in tightening over the near-term horizon amid evidence of cooling inflation.
The concluding quarter of 2022—one of the most tumultuous calendar years across financial markets in recent memory—started strong for risk-seeking investors, particularly those emphasizing domestic markets.
The third quarter of 2022 provided little respite for investors hoping to see a change in trend across the financial markets after significant downside volatility in the year’s first half.
Following a July rally in both risk-oriented and high-quality assets, performance across the financial markets in August reverted to the general theme in place throughout most of 2022, with negative performance experienced in most major asset classes and categories.
Investors breathed a sigh of relief in July amid rebounding performance across most major asset classes and categories, despite confirming evidence of a slowdown in U.S. economic activity and a further tightening of monetary conditions by the Federal Reserve (Fed).
Traditional asset classes and categories declined sharply in the final month of the second quarter, capping off one of the most challenging first six months of a calendar year in recent memory, as global equities, core and high yield bonds, and real estate investment trusts (REITs) posted double-digit losses through the first two quarters of 2022.
Following a notable increase in volatility in April during which most major asset classes and categories experienced significant downside pressure, market performance in May appeared more ordinary, with the ongoing theme of strong commodity-related sector performance firmly in place.
Volatility spiked meaningfully in April and continued into early May as the U.S. government reported an unexpected contraction in economic activity in the first quarter, and the Federal Reserve (Fed) hiked the federal funds rate (FFR) by 50 basis points (bps), the first hike of this size since 2000.
Multi-decade high inflation, the interest rate liftoff by the Federal Reserve (Fed), sharply rising energy prices, and Russia’s invasion of Ukraine were a few of the key drivers behind the spike in volatility across the financial markets in the first quarter of 2022.
Russia’s invasion of Ukraine dominated the geopolitical backdrop in February, driving market volatility sharply higher and reigniting investor worries of a global systemic crisis.
The strong positive momentum across most major asset classes and categories in 2021 encountered meaningful headwinds in the first month of 2022, particularly among rate-sensitive assets, as market participants digested the Federal Reserve’s (Fed) pivot to incrementally tighter policy.
The ongoing global economic recovery that occurred throughout 2021 was accompanied by historically elevated returns across most risk-oriented corners of the market, particularly domestic sectors.