History Often Rhymes but Does Not Repeat?

As we enter the last few weeks of 2022. It’s time for a year-end assessment.

I’ve seen many headlines this year like, “what a terrible year, nothing is performing, there’s nowhere to hide.” And from the chart below, you can see it’s valid:

Data through 9/30/2022

Let’s review some key factors in this year’s performance:


· Russia invades Ukraine 2/24/22

Eight months later it’s affecting energy supply globally and especially in Europe. Looks to be a tough European winter, due to the continent’s reliance on Russian energy. This could be the primary catalyst of a recession in Europe in 2023. Scarcity and fear have remained big factors in positive commodities performance this year.


· High inflation in 2022 (over 7% all year)

Source: Monthly inflation rate U.S. 2022 | Statista

Big inflation in food, transportation and housing. Small bonus – electronics are cheap. Recently, I snagged a 65-inch TV for $350, so I can confirm electronics are cheap!

Source: Here’s the inflation breakdown for September 2022 — in one chart (cnbc.com)

Rising Interest Rates

· Fed Reserve rate hikes in 2022

Including the remaining hike in December, projections show a total increase to 4.25% in 2022. Causing the 30-year mortgage rate to go from 3.11% (12/30/2021) to 7.08% (11/1/2022). Estimates show housing is approximately 15 – 18% of US GDP – so this a big deal. As the housing market cools, inflation and the economy should slow. The Federal Reserve is trying to thread the needle. Raising rates enough to slash inflation, but not throw the economy into a deep recession.

Source: Fed’s Interest Rate Hikes in 2022 – What the November Raise Means for You (moneycrashers.com)

The rate increases have affected fixed income returns – down 15% YTD. Rising rates have an inverse effect on bond prices. Silver lining here is that going forward you can get a better rate on short term fixed income and cash.

Big Tech comes back to orbit

· What goes up, must come down

Big tech companies have seen massive market correction this year. A common measuring stick to compare valuations is Price to Earnings ratio (PE ratio). It is:

The higher the ratio, the more expensive a company’s price is relative to its earnings. And different sectors have different PE ratio averages. The technology sector forward PE ratio is almost down to historical 20-year averages.

Let’s look at the top 5 largest holdings of the S&P 500 – about 22% of the total index.

Source: The Top 25 Stocks in the S&P 500 (investopedia.com) (10/11/2022)

And their approximate % performance YTD:

Enough said, Tech took a tumble.

Changing employment landscape

· Employment landscape settles as Covid recedes

Hybrid work model is here to stay for a majority of employers. Impacting many areas of the larger economy and personal economies. Office space adjustments are happening across the country. And we are seeing a big decline in REIT performance this year.

Source: 30 Essential Hybrid Work Statistics [2022]: The Future Of Work – Zippia

In most years half to 2/3 of asset classes are positive. Normally a silver lining for diversified investors. When one area of your portfolio is down, others help to prop it up. But unless you were allocated to Commodities in 2022, you’re not seeing much benefit of diversification. And cryptocurrency, not pictured here, is down even further than other assets YTD. The only two positive asset classes this year are Commodities and Cash. And cash is always positive.

When was the last time only 2 of the 9 asset classes were positive?

You might have guessed, 2008 – during the Great Recession. Notice it’s not the same two asset classes. That year Fixed Income and Cash were the top performers.

History often rhymes but does not repeat.

In 2008 the worst performers were down over 50% (Emerging Markets). The worst in 2022 is down 27% (REITs). Though this may be your first time investing in a bear market, remember it has happened before. Take a look at the returns from 2009 – 2021. Those who participated as investors during those years, experienced excellent returns.

None of us know when this down market will rebound. But with history on my side, I am comfortable plowing money in at cheaper prices and waiting for a market recovery to happen.

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