Investment Commentary – December 28, 2022

Year to Date Market Indices as of December 28, 2022

  • Dow 33,416 (-8.16%)
  • S&P 3,855 (-18.68%)
  • NASDAQ 10,915 (-32.90%)
  • OIL $85.12 (5.08%)
  • Barclay Bond Aggregate (-14.15%)
  • Gold    (-0.93%)

ProShares Market Commentary: December 2022

Simeon Hyman

November was a great month for stocks and bonds. The S&P 500® was up 5.6% and the U.S. aggregate bond index was up 3.8%. What’s behind this unexpected combination?

Mathematically, bond prices went up because yields went down. December saw the U.S. 10-year Treasury yield fall from 4.1% to 3.6%. That’s the kind of interest rate move—and increase in the price of bonds—that’s generally supposed to offset falling stock prices and provide some diversification.

Stocks rallied, however. The math here is also straightforward. Lower Treasury yields typically drive Price-to-Earnings (P/E) multiples higher, because future earnings are discounted at a lower interest rate. The S&P 500’s P/E ratio went from 18.7X at the beginning of the month to 19.7X at the end of the month. That means that roughly 5.3% of the S&P 500’s 5.6% gain came from the higher P/E. S&P 500 earnings barely budged, and if earnings don’t budge, stocks can act much like bonds. But that is a big if.

Market-moving news

U.S. inflation moderation: The U.S. Federal Reserve’s preferred gauge for tracking inflation showed a further cooling of price hikes. The government reported on Friday that its Personal Consumption Expenditures Price Index rose at an annual 5.5% rate in November, down from a 6.1% in October. Excluding food and energy prices, prices rose at a 4.7% annual rate versus 5.0% in October.

2022 sector outlook: Looking ahead to 2023, many Wall Street analysts have a positive view of three equity sectors: energy, communication services, and information technology. Those were the sectors that had the highest percentages of “buy” ratings from analysts, as of December 19, according to FactSet. Those with the lowest percentages of buy ratings: consumer staples, financials, and materials.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.  (Market Indices) (Around the Web & Upcoming Events) (YTD Performance Chart)