Quarterly Investment Review: Q4 2022

Stock markets rounded off a tumultuous year with gains in Q4. Asian shares were boosted by China’s relaxation of its zero-Covid policy, while European equities also advanced strongly. Government bond yields edged up towards the end of Q4 and reflected some market disappointment at major central banks reiterating plans to tighten monetary policy, even as inflation showed signs of peaking.

While there is myriad of predictions and commentary on where market conditions may be in 2023, SAA is primarily/currently focused on four broad themes:

• Although inflation has moderated, rates and reinvestment yields may remain elevated in 2023. Current inflation remains significantly above the Fed’s 2% target. Markets are skeptical of the Fed’s position; so, follow the data, especially the labor markets.
• Equity market volatility will continue as market expectations rapidly change to reflect new economic information that impacts earnings growth estimates as well as the assumed discount rates used for equity valuations.
• Maintaining the long-term asset allocation view amidst short-term noise
• With fixed income reinvestment yields double or triple what they were just a year ago, the opportunity cost of holding cash and cash equivalents has been significantly diminished. With rising claims payments and reinsurance premiums, having additional liquidity may be prudent in 2023 with minimal opportunity cost as short-term yields move toward 4%-5%.