We, Kramer Wealth Managers, want to take the opportunity to share our market insights for the fourth quarter of 2022.

Stocks ended a volatile fourth quarter with a slight gain, which helped reduce some of the loss since the beginning of the year. For much of the quarter, it was encouraging to see stronger-than-expected earnings, a deceleration in inflation, and a growing belief that the Fed may start to scale back on the pace of interest rate hikes. But the upbeat mood soured in December as recession fears were rekindled by ongoing Fed hawkishness.

The Dow Jones Industrial Average gained 15 percent for the three months, while the Standard & Poor’s 500 tacked on 7 percent. The Nasdaq lagged, slipping 1 percent.

Let’s briefly review the past three months. 

The quarter opened on a volatile note as stocks reacted to both international news and domestic economic updates.  The market improved as third quarter earnings started rolling in. Early earnings reports calmed some fears of deteriorating profits and pushed Fed policy concerns into the background. Stocks added to their gains in November based on growing investor optimism for a slowdown in future rate hikes. After the Federal Open Market Committee (FOMC) announced a 75 basis point rate hike at the start of the month in November, stocks retreated on comments by Fed Chair Jerome Powell in his post-meeting press conference. Markets staged a quick recovery, though, following a better-than-expected inflation report that ignited a strong rally in November.

Stocks opened in December by surrendering some of the October and November gains due to recession fears and concerns over possible higher rates. The Fed announced another rate hike of 50 basis points, but that increase did cause some concerns about recession and closed the quarter and the year on a muted note.

In the month ahead, we expect the market spotlight to fall on three key dates. The first will come on January 12th with the December Consumer Price Index report. We will see if the inflation continues to slow down. The second will be on January 26th with the initial reading of the fourth-quarter gross domestic product. A healthy number may be a relief to those worried about an imminent recession, or it could be viewed as a reason for the Fed to maintain its hawkish rate hike path. Lastly, the FOMC will open its two-day meeting on January 31st. The forward-looking markets tend to focus on what Fed Chair Powell says about the direction of the economy in the post-meeting press conference.