RESEARCH // January 20, 2023
Quarterly Letter-Q4 2022: Let’s Turn the Page


Early in the quarter, markets again got ahead of the Federal Reserve, rising in hopes of an easing signal to come. When the Fed clarified in November and again in December that it was not yet done fighting inflation, sentiment turned. By the end of December, the quarter’s early gains had partially evaporated.

For 2022 as a whole, the tally was grim. US bonds experienced their worst year on record. Global equities fell sharply. As a result, returns from a traditional 60:40 portfolio of stocks and bonds were the worst since 2008.

There remains a disconnect between market expectations that rates will ease sooner rather than later and the central bank’s hawkish Q4 projections, outlined in December, which showed rates rising by a further 75 basis points or even a full percentage point, and staying above 5% through 2023. There are different explanations for the disconnect. Do investors expect a weakening economy and softening consumer sentiment to push the Fed to loosen policy, perhaps prematurely before inflation is beaten? Are they betting instead that inflation will dissipate more rapidly than the Fed anticipates, with less economic pain, resulting in the oft-hoped-for soft landing? Or are financial markets looking beyond today to anticipate the recovery that will eventually come?

Against this backdrop, RockCreek sees four key macro themes for 2023:

1. Will the US have a hard or soft landing, as monetary tightening feeds through to the real economy?
2. When will an improving inflation performance cause the monetary cycle to turn?
3. Will the energy shock from war in Europe continue to be contained, helped by winter warmth, European subsidies, and the US tapping the Strategic Petroleum Reserve?
4. How successfully can China exit from “Zero Covid”, and will a return to robust growth be hobbled by longer-term trends of demographics, shifting trade patterns, and focus on state owned enterprises?

Click here to read the RockCreek Q4 2022 Commentary Letter


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