2022 Year in Review and 2023 Market Outlook

For a time during the fourth quarter, it looked like help was on the way for investors after a brutal first three quarters of the year.

But by the end of 2022, relief over a potential slowing in Federal Reserve interest-rate increases was replaced by concerns that the economy was both currently too strong to allow inflation to come down significantly and, at the same time, that a recession looks increasingly probably next year.

What did this mean for the stock market and bond market? What should investors do from here?

We’ve gathered insights and perspectives from analysts and specialists about market performance, individual stocks, funds, and strategies. We examine what brought us here and what investors should be thinking about when it comes to the market outlook.

2022′s Market Performance and the Economy

When it came to market performance and investment returns in 2022 there was one clear, dominant force driving the markets: inflation.

Inflation’s surge to 40-year highs led the Fed to an unprecedented series of interest-rate increases, cratering the bond market and sending stocks into a bear market that continued into the end of the year.

Here’s our look at the big market and economic trends for 2022, and Morningstar’s market outlook for 2023:

2023 Stock Market Outlook: Near-Term Turbulence, but Clearer Skies Ahead

Stocks are trading at a deep discount, but need evidence of long-term economic rebound and moderating inflation to rally back to fair value.

What Investors Can Learn From a Terrible Year

Painful lessons from the markets to take into 2023 and beyond.

Why Isn’t Diversification Working?

Actually, it is. Your portfolio just may not be diversified enough.

5 Charts on Value Stocks’ Big Comeback

Having been out of favor for more than a decade, value stocks have caught back up with growth.

Better Investing Opportunities Coming Your Way in 2023

5 new themes for portfolios, including bonds, China, and active management.

Where to Invest in Bonds in 2023

After investors suffered their worst losses ever in 2022, bond returns are poised to rebound next year.

What Will Happen to the Dollar in 2023?

A falling dollar could bring new risks for inflation, including rising commodity prices.

2022 Mutual Fund Performance

As the dust settles on 2022, it’s been an all-around brutal year for mutual fund investors. The average US stock fund finished the year down roughly 17%, with the average large-value fund down about 6%, and large-growth funds down an average of nearly 30%.

For US bonds, mutual funds and exchange-traded fund performance, the story in many ways is much worse, where in many cases, losses were the biggest in history.

Thanks to the Fed’s rate increases and stubbornly high inflation, US core bond funds—strategies generally used as the basic building blocks of portfolios—have lost an average of roughly 12% in 2022, high-yield funds are down an average of about 9% , and inflation-protected bond funds have lost some 8%.

Here’s a closer look at how fund investors fared in the fourth quarter and in 2022:

2022′s Best-Performing US Stock Funds

These stock funds are the winners in recent years.

2022′s Best-Performing Bond Funds

Just about the only safe haven from rising rates were these ultrashort bond funds.

2022 Stock Performance and Market Outlook

Which stocks have been the best performers in the bear market? Which have taken the biggest beating? Which stocks should long-term investors be looking to buy now?

Here, we take a deeper dive into 2022′s and fourth-quarter stock market performance among sectors and individual stocks, along with the fourth-quarter outlook from Morningstar’s stock analysts:

Where Are Stocks Looking Cheap or Expensive?

Seven charts on valuations as the stock market heads into 2023.

5 Charts on Big Tech Stocks’ Collapse

Big Tech stocks collectively lost nearly $4 trillion in market value in 2022.

Best Sustainable Companies to Own: 2023 Edition

We believe these companies’ strong ESG management practices give them a long-term advantage.

Best Innovative Companies to Own: 2023 Edition

These companies are expected to benefit from disruptive technologies.

Your Money

Stock and bond market performance in 2022 had a big impact on most investors’ portfolios, leaving many investors unsure of what to do next. That’s especially the case for retirees. Morningstar’s experts provide some insight for investors on how to navigate these difficult markets.

Top 6 Portfolio Moves for 2023

While the market environment remains uncertain, there are a few key changes worth considering.

Your 2023 Tax Fact Sheet and Calendar

Bookmark this guide to stay abreast of the tax-related dates and data that should be on your radar this year.

Christine Benz and John Rekenthaler: Revisiting What Is a Safe Retirement Spending Rate After a Tough Year

Christine and John discuss the key findings from ‘The State of Retirement Income’ study that they recently published.

4 Portfolio Lessons From 2022

Here are some key takeaways for investors after a tough year for most markets.

4 Investment Mistakes to Avoid in 2023

How to accept uncertainty and prepare your investments for different scenarios.

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