2022 was a difficult year across all asset classes with equities and fixed income both down. Inflationary pressures are coming down and we believe inflation may have peaked. Given the Feds short-term rate hikes, the yield curve also inverted in Q4 signaling the likelihood that a recession may be on the horizon for the U.S. this year. Europe and China entered the recessionary phase ahead of the U.S., with Europe faring better than expected due to a milder winter, and China setting to reopen by doing away with its zero COVID policy, making non-U.S. equities particularly interesting.

To monitor key trends in advisors' strategic allocations and rebalances, we used the findings from reviewing over 10,000 professionally managed investment portfolios in 2022. Our analysis uncovers key themes playing out within each asset class, that we believe will continue to be top of mind in 2023 and potentially beyond:

2022 has been challenging as both stocks and bonds have struggled against the backdrop of the highest inflation in 40 years. We may have entered a higher inflation regime where additional asset classes beyond stocks and bonds are needed to build a more diversified portfolio. Fidelity can help you navigate these challenges to help you position your clients' portfolios for years to come.

Diversification does not ensure a profit or guarantee against a loss.

Stock markets, especially non-U.S. markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. The securities of smaller, less well-known companies can be more volatile than those of larger companies.

Although bonds generally present less short-term risk and volatility than stocks, bonds do contain interest rate risk (as interest rates rise, bond prices usually fall, and vice versa) and the risk of default, or the risk that an issuer will be unable to make income or principal payments.

Additionally, bonds and short-term investments entail greater inflation risk—or the risk that the return of an investment will not keep up with increases in the prices of goods and services—than stocks. Increases in real interest rates can cause the price of inflation-protected debt securities to decrease.