2022 was a historically difficult year for the financial markets driven by higher inflation, rising interest rates and continued aggression by Russia in Ukraine. The stock market, as measured by the Index, declined 18.1% for the year, marking the worst one-year calendar return since 2008 and the fourth worst calendar year return since the Great Depression. Results were similar with both International and Emerging Market stocks. The bond market, which historically provides support during periods of equity volatility, did not fare much better than the equity markets. The Barclay’s U.S. Aggregate Bond Index, widely considered a proxy for the U.S. bond market, declined 13.1% for the year, its worst annual performance in its 50-year history.

It has been a challenging year for the financial markets. We wanted to offer our investment view and outlook now, as opposed to waiting until you receive your quarterly Talbot Financial portfolio review in mid-October. Please note, your Schwab brokerage statement as of September 30, 2022, is available online by logging in to your account at www.schwaballiance.com.

Higher inflation and the fear of a potential economic recession resulted in a broad sell-off across the financial markets during the first half of the year. The Index declined 16.1% during the second quarter and is down 20% through the first half of the year. Furthermore, the Bloomberg U.S. Aggregate Bond Index, a measure of the total bond market, fell 10.3% through the first half of the year. Therefore, the sell-off has adversely impacted both stocks and bonds.

As we continue to navigate the challenges in the world around us, we want to express our concerns and sadness for the suffering and devastation of the Ukrainian people. In the midst of this violent tragedy, we are inspired by the courage and spirit of the people of Ukraine, and we remain hopeful for a path forward of stability and peace.

The S&P 500 Total Return Index returned 28.7% in 2021 in the face of new COVID variants, higher inflation and a potential shift in Federal Reserve policy. The primary driver of the favorable return last year was strong growth in earnings from the companies in the Index. In fact, 2021 earnings for S&P 500 companies will be in the mid 30% range for the year.