2022 was a year characterized by geopolitical tensions, rate hikes, and inflation concerns across regions, with significant losses across asset classes. Oil prices surged in March as the Russia-Ukraine conflict disrupted global oil trade flows, but prices reversed in the second half of the year as recession risks multiplied. The seeds for a 2023 recession were sown with the Fed’s rate hikes that have begun to permeate the economy. The 2023 global growth forecast factors in that the effects of policy tightening are yet to be felt. Recessions in major economies are expected in the first half of 2023 as reductions in corporate earnings in the first quarter continue to lag inflation. In January, we revised our twelve-month forward outlook for the U.S. economy of six months of Recession followed by six months of Stagnation to three months of Recession followed by nine months of Stagnation.

China reversed its policy on zero-COVID, brightening the prospects for the world’s largest economy in 2023. The Chinese economy expanded 2.9% year over year in Q4 of 2022, following 3.9% growth in Q3.  For the full year of 2022, the economy grew by 3.0%.1 China’s annual inflation rate rose to 1.8% in December from November’s eight-month low of 1.6%.2 China’s surveyed urban unemployment rate declined to 5.5% in December 2022 from November’s six-month high of 5.7%.3 China’s trade surplus dropped as exports plunged 9.9%, the largest decline in nearly three years, while imports fell at a softer 7.5%.4 The economic outlook in the Euro Area worsened, amid lower growth and higher inflation. Imports climbed by 20.2% while exports rose at a softer 17.2%. The trade deficit widened sharply with Russia and China.5

The U.S. economy expanded an annualized 2.9% in Q4 2022, following a 3.2% jump in Q3, rebounding from two straight quarters of contraction.6 The U.S. trade deficit narrowed to $61.5 billion in November of 2022, the lowest since September of 2020.7 The annual inflation rate in the U.S. slowed for a sixth straight month to 6.5% in December of 2022,8 while the unemployment rate in the U.S. dropped to 3.5%, matching the rates seen in September and July.9 Canada posted their first trade deficit in 11 months in November of 2022, as exports fell by 2.3%. The sharp decrease in energy prices during the period deflated the sum of foreign energy sales. Imports fell by 2.1%.10 The unemployment rate in Canada was at 5% in December of 2022, the lowest since the record low of 4.9% in June and July.11

The S&P 500 turned in an annual decline of 18.1%, the worst since 2008. Smaller caps performed relatively better, with the S&P Mid Cap 400 and S&P Small Cap 600 down 13.1% and 16.1%, respectively. Energy gained 65.7%. Dividend and low volatility strategies offered relatively safe harbors.  As yields rose on the back of inflation concerns, bonds declined across the board, with heavy losses among Treasuries and corporates. The S&P/TSX Composite fell 5.8% for the year, while Energy was up 30.3%. The S&P Europe 350 shed 3.5% in the final month to finish 2022 with a -8.6% total return. Mid and small caps did worse, with the S&P Europe Mid Cap and the S&P Europe Small Cap plunging 18.3% and 19%, respectively. The heavyweight U.K. market was the brightest spot, contributing 0.33%, while Germany was a major drag, subtracting 2.1% from the S&P Europe 350. Much of the positive return of Gold Billion in December is attributed to a weaker US dollar as other factors such as futures positioning, and rates largely netted each other out. The US dollar index (DXY) fell below its 200-day moving average in the month, for the first time since June 2021. Gold prices posted a small gain in a year when real yields (10-year TIPs) rose an unprecedented 250 basis points and the dollar gained over 8%. Central banks have been buying gold at their fastest pace since the late 1960s in 2022, according to the World Gold Council. It is assumed that China and Russia are major buyers, but there are no official numbers, as not all government agencies disclose their gold holdings.

In January, our optimization process was unable to identify portfolio solutions for any of our Model Risk Thresholds. With this guidance, we maintained our asset allocation, including the twenty percent cash position across all models. 2022 provided an example of how diverse sources of demand and supply can provide gold with its uniquely stable portfolio-additive performance as gold produced a marginal gain in 2022.

The continuing rise in interest rates will produce a wave of debt defaults. Economic and geopolitical catalysts for volatility are in place that are expected to produce both short and long-term market volatility and risk throughout the highly levered global financial system. This foundation of economic recovery is unstable, as the global situation remains complicated and as the domestic pressure of demand contraction, supply shock, and weakening expectations prevails. We are currently positioned for a recession in the U.S. in the first quarter. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China GDP. January 17, 2023.

2 Trading Economics. China Inflation. January 12, 2023.

3 Trading Economics. China Unemployment. January 17, 2023.

4 Trading Economics. China Trade. January 13, 2023.

5 Trading Economics. Eurozone Trade. January 16, 2023.

6 Trading Economics. U.S. GDP. January 26, 2023.

7 Trading Economics. U.S. Trade. January 5, 2023.

8 Trading Economics. U.S. Inflation. January 12, 2023.

9 Trading Economics. U.S. Unemployment. January 6, 2023.

10 Trading Economics. Canada Trade. January 5, 2023.

11 Trading Economics. Canada Unemployment. January 17, 2023.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. December 31, 2022. Index performance is based on total returns and expressed in the local currency of the index.