December Recap and January Outlook


While the equity markets, as measured by the S&P 500 index, was up in the third quarter, December was a disappointment from the gains seen in October and November. There’s no understating the volatility seen in the market this year. For context, Dow Jones Market Data indicates that the S&P saw more market moves of 2% (both up and down) in 2022 than in 2020. The 46 moves over the 2% threshold are approximately four times the 10-year average of 11.3. 


Inflation is dropping, if slowly. Employment is lower, but strong, which is supportive of the economy, and GDP returned to positive. What’s causing the volatility? Many factors are in play, but arguably the largest is the Federal Reserve’s moves on interest rates, and the messaging from Chairman Powell and the Fed Governors. 


Equity Markets


  • The S&P 500 was down 5.90% and finished the year at -19.44%
  • The Dow Jones Industrial Average lost 4.17% and had a year end result of -8.78%
  • The S&P Mid-Cap 400 returned -5.72% and full-year performance was -14.48%
  • The S&P Small-Cap 600 decreased 6.89% and was down 17.42% for the full year

Source: S&P. All performance as of December 30, 2022


December reversed the positive performance of October and November, and despite a small “Santa Claus” rally, all 11 sectors declined. Utilities saw the smallest decline of 0.77%, and Consumer Discretionary saw a whopping 11.31%  decrease for the month. 2022, Energy was the only positive sector for all of 2022, up 59.04%, and Communication Services was the worst sector, down 40.42%.


Bond Markets


The 10-year U.S. Treasury ended the month at a yield of 3.88%, an increase from 3.61% in November. For comparison, the 10-year yield was 1.51% at year-end 2021. The 30-year U.S. Treasury ended December at 3.97%, up from 3.75% last month. The Bloomberg U.S. Aggregate Bond Index ended December with a return of -0.45%. The year-to-date return at month end was -13.01%, continuing the trend positive correlation between the equity and bond markets. 


Chart of the Month: Fed Funds Rate, early 1980s


The chart below tracks the path of the Fed Funds rate between July 1979 and November 1981. This whipsaw is exactly what the Fed is trying to avoid. A recession in early 1980 (indicated by the shaded area on the chart) resulted in a massive decrease to the Fed Funds rate – which was followed by an increase and another, longer recession. 



Source:, Fed Funds Rate 62-year Historical Daily Level 


The Smart Investor


The ongoing strength of the labor market is providing some hope that if 2023 does see a recession, it will be mild. However, predictions are that growth will slow from its already low levels. The path of the markets is likely to be as choppy as 2022, with observers and investors still playing “watch the Fed” and the Fed attempting to fight inflation while managing expectations in a way that will be helpful to Fed policy and not fight it. 


What should investors focus on? The same thing as every year: your own goals. There’s no substitute for having a plan, no matter what stage you are in. The SECURE 2.0 act has made meaningful improvements to the ability of just about everyone to save for retirement, or conserve retirement savings. Updating your plan to take advantage of the new opportunities makes sense. 


There are some tactical things you may want to think about: 


  • 401(k) limits increased. Think through when you’ll contribute. 
  • The age for RMDs increased – consider additional Roth conversions
  • Don’t forget your RMD, or complete a qualified charitable distribution to offset it
  • Ongoing volatility means diversification is even more important


The start of the year is all about resolutions. But there’s a reason that the second Friday of January is known as “Quitter’s Day.”  When it comes to your financial plan, having resources build and monitor an ongoing structure that runs in the background and help you achieve your goals. 


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA


Northbrook Financial is an Investment Adviser registered with the State of Maryland. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. Please contact us at 410-941-9709 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate or modify any restrictions on the management of the account. Our current disclosure brochure, Form ADV Part 2, is available upon request, and on our website