Bear Mountain Capital Inc.

What’s Ahead for Investors in 2023 and Beyond

| January 11, 2023

Blog | Economy | Planning Perspectives | Portfolio Management


It’s difficult to know what the future will hold without understanding the past. 2022 was a difficult year in the market. An unprecedented, rapid increase in interest rates by the Federal Reserve, created significant market volatility and negative returns for the year:

Fed Funds Rate 10 Years

Consequently, the S&P 500 finished down -19.44% and investors experienced the risk side of the “risk/reward” relationship. What was different about 2022 was that the negative market returns were not only attributable to stocks, but also bonds.

The chart below compares the pace of this current Fed Funds rate hike cycle, compared to historical rate increases. This rapid increase in interest rates caused bond portfolios to experience significant declines. With core bond indexes, such as Bloomberg’s Aggregate Bond Index, having a total return of -12.09%, even the most conservative investors were left with very few places to hide.

Rapid Rate Increase

The question on many investors minds was “Why?” Why did Federal Reserve policy makers act so aggressively in raising interest rates? The simple answer is inflation:


Several factors contributed to the inflationary pressure we experienced in 2022. Most of these factors stemmed from a “once in a 100 year” pandemic resulting in several significant economic effects:

  • Supply chain disruptions – the impact of COVID infections and country specific COVID restrictions resulted in a major setback to the global “just in time inventory” supply chain that the world had learned to rely on. The net result was a high demand for a limited supply of goods.
  • Energy supply disruptions due to geopolitical events – Russia’s invasion of Ukraine spurred an energy shortage which exacerbated inflation as many global economies shifted away from Russian oil and natural gas supplies.
  • Unprecedented fiscal stimulus – in the early days of the pandemic, US congress authorized significant economic stimulus, pumping trillions of dollars into the economy in the form of direct relief, expansion of benefits, increase of government lending and direct grants to states, local governments, schools and universities. This historical stimulus package resulted in more dollars chasing fewer goods, creating higher prices for consumers.
  • Labor shortages – as the pandemic stretched on, the impact of worker shortages compounded economic problems. The trucking industry did not have enough drivers, ports did not have enough longshoremen, retailers and restaurants couldn’t keep staff and corporations realized a significant decline in productivity due to losses of employees through pandemic-induced attrition. Fewer workers put pressure on employers to increase wages to attract and retain talent.