Equity markets tumbled in December to finish off a painful year for stocks. The Nasdaq Composite, the S&P 500, and the Dow all posted their worst calendar year returns since 2008. Notably, the Nasdaq muddled through its fourth consecutive negative quarter for the first time since 2001. 2022 was also the worst year for the FTSE Canada Universe Bond Index since its inception, as it shed about 12%. Sticky inflation, aggressive rate hikes from the Federal Reserve, and geopolitical concerns weighed on investor sentiment throughout the year, spurring recession fears.

Canada’s benchmark S&P/TSX Composite Index was 5.2% lower in December, but the index ended the fourth quarter 5.1% higher. Nine of the benchmark’s underlying sectors were positive during the quarter, led by a 12.5% gain for information technology. The health care sector was the main detractor for the quarter, with a decline of 11.3%. Small-cap stocks, as measured by the S&P/TSX Small Cap Index, gained 7.8% for the quarter.

The U.S. dollar depreciated by 2.0% versus the loonie during the quarter, slightly dampening the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms. U.S.-based stocks, as measured by the S&P 500 Index, fell 5.9% in December, but finished the quarter 5.1% higher. The benchmark’s top performing sectors for the quarter were energy, industrials and materials, with respective gains of 19.4%, 16.5% and 12.3%. Consumer discretionary and telecommunication services were the only sectors in the red during the quarter, falling 12.1% and 3.4%, respectively. International stocks, as measured by the FTSE Developed ex US Index, advanced 13.8% during the quarter, while emerging markets rose 6.1%.

The investment grade fixed income indices we follow were up in Q4. Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, increased by 0.1%, while the key global investment grade bond benchmark rose 4.5%. Global high-yield issues added 4.3%. Turning to commodities, the price of natural gas plummeted 33.9% in the fourth quarter, while crude oil was up 1.0%. Copper, silver and gold all had a positive quarter, with respective gains of 11.7%, 26.3% and 9.9%.

Inflation in Canada edged down to 6.8% year-over-year in November. The Canadian economy added 10,000 jobs in November, as the nation’s unemployment rate fell to 5.1%. The Bank of Canada raised its benchmark interest rate by 50 basis points and signaled that a pause in rate hikes could be coming.

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