Considering how last year began, the 18% full-year decline in the S&P 500 might seem about right. However, the performance of the broad index doesn’t tell the story of many, many stocks that fared much worse in 2022. Expensive, growth-oriented stocks were the most aggressively sold as the Fed raised rates with unprecedented urgency. At the same time, Russia’s invasion of Ukraine and the resulting disruptions exacerbated post-COVID supply chain problems and inflationary pressures that proved less transitory than initially thought.

It’s too early to know whether the Fed has done enough to quash inflation, but it has already had much success. From high prices set in 2022, oil has dropped 25%, lumber 37%, wholesale gasoline 43%, and Bitcoin 74%. If Chairman Powell retains his “data-dependent” approach, he must be liking what he is seeing. He can’t say that though. The rhetoric will remain hawkish right up to the moment of the pause or pivot. To do otherwise would have the same market and economic impact of actually pausing or pivoting. The bond market sees things this way now also – signaling that the Fed’s terminal rate likely won’t be as high as the Fed’s official narrative.

We start 2023 worrying about many of the same uncertainties that were front of mind last year but with a very different investing landscape: bond yields now provide fixed income investors reasonable returns, stock valuations are lower, and the Fed has already done a lot of heavy lifting. A recession is still a possibility, but the labor market is the tightest in 50 years, and consumers are still in relatively good shape.