Third Quarter 2022

By Generational Group


Capital markets struggled in the latter half of the third quarter due to stubbornly high inflation, aggressive Fed policy, and recession fears. Data released in Q3 showed that US GDP had contracted for the first two quarters of the year. The Federal Reserve’s explicit stance on policy decisions has driven market volatility as every statement is closely scrutinized for implications of future interest rates. 

Inflation has remained higher and more persistent than expected, despite the easing of commodity price shocks created by Russia’s invasion of Ukraine. However, unemployment remains near historical lows. The tight labor market and associated wage increases will make it difficult for the Fed to achieve its inflation targets until conditions moderate.

The S&P 500 Index returned -4.9% during Q3 and closed the quarter down 23.9% year-to-date. International indices underperformed the US, exacerbated by weaker currencies as investors sought safer, higher-yielding assets in the US.  Instead of acting as a diversifying asset, bonds declined with stocks. The Bloomberg US Aggregate Bond Index lost an additional 4.8% in Q3. On the other hand, alternative investments have worked well to mitigate portfolio drawdown, with the HFRI Asset Weighted Composite Index up 3.27% through the end of Q3. Value stocks have outperformed year-to-date across the US, developed international, and emerging markets.

The single most important variable in determining long-term portfolio performance remains investor behavior. Working with a trusted financial planner and/or advisor can help avoid emotional decisions when markets are volatile.  Implementing a well-thought-out strategy and sticking to it during difficult time periods creates the highest probability of success.