Download our Q4 2022 Market Outlook.

Market Outlook

Until recently, we had been living in a decade-long easy money environment marked by low interest rates and a strong economy. We saw significant appreciation in many different types of assets driven by an insensitivity to valuation. The music stopped in 2022 when central banks around the world started raising interest rates in a concerted effort to fight global inflation.

While we are feeling the pang of the market downturn, it’s important to recognize that major equity indices are higher than they were prior to the pandemic. By the end of 2022, the S&P 500 total return for the last three years was still +7.6% annualized, which included the two euphoric years that preceded the market correction. This is in line with the long-term historical market trend. What’s more, for those who have invested in the U.S. market for the past 10 years, this recent bull market still generated an impressive +12% annualized return.

So, where do we go from here? There is the economy and then there is the financial market. The brunt of the market correction is likely behind us but there will be lingering market uncertainty in the near term dictated by the course of the broader economy. Global equity outcomes will rest on central banks’ success in balancing this interest rate and inflation dance. Barring other unforeseen catastrophes, if the Federal Reserve is successful in bringing down inflation without toppling the economy, we may see a mild recession followed by the U.S. equity market getting on a path to recovery. However, if inflation proves to be persistent and central banks are forced to raise rates further, then there is a heightened risk of a deeper recession in the U.S., which will extend the current market volatility. We expect the rest of the world to suffer a worse economic downturn, with the greatest risks to Europe and the emerging markets. Please see our recent market commentary for more in-depth discussion on the topic.

Regardless of which scenario unfolds, we believe that the global market environment will present some decent investment opportunities for us. We are focused on further diversifying portfolios and selectively adding high quality investments that we believe will yield attractive total returns over the next few years. While market uncertainty remains, much of the euphoric valuation has been flushed out by this market correction and we remain cautiously optimistic. Predicting the near term is often more challenging than projecting long-term returns. Over the next few years, we still believe equities remain an attractive asset class for your investments.

Impact Update

This quarter, our advocacy work culminated in the filing of shareholder resolutions seeking greater accountability and action from our portfolio companies. We refiled a lobbying disclosure proposal with AbbVie, resulting in the company announcing it would not renew its membership to several controversial trade associations. Concerned about the misalignment between Alphabet’s climate commitments and its direct and indirect lobbying activities, we refiled a resolution asking the company for information on how it evaluates its memberships in trade associations that have lobbied heavily to forestall progress on addressing climate change. After years of engaging UPS on its climate change mitigation plans, we filed a proposal pressing the company to identify meaningful linkages between its GHG emissions reductions targets and executive compensation. Taking stock of the year behind us and the impact we have helped to advance, we will continue to shine a light on the impacts of corporations in the year to come. Learn more about our progress this quarter in our Q4 Impact Update.

Disclosures: Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Nothing in this communication is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational and illustrative purposes. This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the beliefs and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such beliefs and expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements. All expressions of opinion are subject to change. You are cautioned not to place undue reliance on these forward-looking statements. Any dated information is published as of its date only. Dated and forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any dated or forward-looking statements.