Equities sold off in December amid recessionary fears fueled by the Federal Reserve’s tighter monetary policy. In the U.S., the S&P 500 Index fell 5.8%, bringing losses for 2022 to 18.1%, the worst calendar year return since the Global Financial Crisis in 2008. Value stocks outperformed with the Russell 1000 Value Index down 4%, finishing the year in the red at 7.5%, while the Russell 1000 Growth Index declined 7.7% ending the year 29.1% lower. Non-U.S. developed markets were up 0.1%, outperforming all other regions.
In fixed income, developed market bond yields continued to face upward pressure amid the hawkish stance from central banks. In the U.S., the yield curve experienced a bear flattener with the 10- and 30-year yields rising 18 and 15 basis points, respectively. The 10-year German Bund yield also increased 58 basis points to 2.53% amid inflation pressures in the Eurozone.
Meanwhile, in real assets, commodities saw another volatile month, rocked by weakening global demand and supply constraints. Spot WTI Crude Oil fell 0.4% in December to $80 per barrel.
NEPC’s stance towards risk assets remains unfavorable given the uncertain dynamics around growth and inflation. We recommend building exposure to short-term investment-grade credit as higher yields offer an attractive defensive position. We also suggest adding exposure to value stocks in U.S. large-cap equity to mitigate the portfolio impact of rising interest rates and inflation normalizing above market expectations. In addition, we still encourage a dedicated allocation to assets that support liquidity needs in periods of stress.
December Monthly Commentary
Equities sold off in December amid recessionary fears fueled by the Federal Reserve’s tighter monetary policy. In the U.S., the S&P 500 Index fell 5.8%, bringing losses for 2022 to 18.1%, the worst calendar year return since the Global Financial Crisis in 2008. Value stocks outperformed with the Russell 1000 Value Index down 4%, finishing the year in the red at 7.5%, while the Russell 1000 Growth Index declined 7.7% ending the year 29.1% lower. Non-U.S. developed markets were up 0.1%, outperforming all other regions.
In fixed income, developed market bond yields continued to face upward pressure amid the hawkish stance from central banks. In the U.S., the yield curve experienced a bear flattener with the 10- and 30-year yields rising 18 and 15 basis points, respectively. The 10-year German Bund yield also increased 58 basis points to 2.53% amid inflation pressures in the Eurozone.
Meanwhile, in real assets, commodities saw another volatile month, rocked by weakening global demand and supply constraints. Spot WTI Crude Oil fell 0.4% in December to $80 per barrel.
NEPC’s stance towards risk assets remains unfavorable given the uncertain dynamics around growth and inflation. We recommend building exposure to short-term investment-grade credit as higher yields offer an attractive defensive position. We also suggest adding exposure to value stocks in U.S. large-cap equity to mitigate the portfolio impact of rising interest rates and inflation normalizing above market expectations. In addition, we still encourage a dedicated allocation to assets that support liquidity needs in periods of stress.