We are at the start of the period in which companies release their results for the fourth quarter of 2022, known as earnings season. With everything going on—inflation, rate hikes, a labor shortage, the strength of the dollar, a pending recession, the list goes on and on—the results are unusually uncertain this time around. Analysts are struggling to figure out exactly what all this means.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam! Let’s take a closer look.

With the new Congress taking office—and specifically the extended time it took for the House Republicans to elect their new speaker—markets are increasingly focused on the potential effects of politics on the economy this year. I have had several questions about the debt ceiling in particular, so let’s take some time and think through what all of this might mean.

December saw a sell-off, reversing some of the bounce from October and November and leaving markets up for the quarter. Unfortunately, that only reversed a small part of the damage done earlier in the year. 2022 closed as one of the worst years in recent memory for financial markets.

As we wait for tomorrow’s jobs report, there is a lot of angst in the air. One of the most predicted recessions in history is very likely to hit this year. The manufacturing business sentiment survey yesterday was down, seemingly confirming that outcome. The Fed is looking to substantially weaken the labor market, in search of lower inflation, and according to the meeting notes released yesterday, is going to keep raising rates until that happens. All of the signs are that the jobs market will weaken significantly. But the question remains, is the job market actually going to weaken?

December closed out a tough year for markets. The U.S. indices showed single-digit declines for the month, capping off drops for the year of about 7 percent for the Dow, more than 18 percent for the S&P 500, and 32 percent for the Nasdaq. The primary drivers were rising inflation and Fed rate increases. Still, job growth remained healthy, and consumer spending and business investment rose.

Earlier this week, I discussed what 2022 taught us about risk. Today, I want to talk about what I will be doing to manage risk in 2023, given those lessons.

For investors, 2022 has been a tough year. We had bear markets in both stocks, which is fairly common, and bonds, which is not common at all. They both happened at the same time, so rather than being saved by diversification, portfolios got hit twice. Even portfolios that were designed to weather market storms, such as a typical 60 percent stocks and 40 percent bond allocation, were hit harder than anyone expected. 2022 was an exceptional year and not in a good way.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, helped me put together this month’s Market Risk Update. Thanks for the assist, Sam! Let’s take a closer look.

As we enter the new year, investors are questioning what happens next. It was a turbulent 2022, including a possible recession and a definite bear market in stocks and bonds. Worries remain, but we’ll start the year with real strengths. Employment and job growth are strong, which will keep the consumer economy healthy. Interest rates are likely close to peaking, and markets are fairly priced.