Quarterly International Equity Strategy Q4 2022

By the end of 2022, stock and bond investors alike were ready to put a dismal calendar year in the rear-view mirror. Thankfully, the fourth quarter showed markets advancing once again—setting a more hopeful tone going into the New Year. This was especially true for investors in international equities, as the magnitude of Q4 outperformance (a nearly 10% advantage for MSCI EAFE vs. the S&P 500) gave the asset class its first calendar year “win” relative to U.S. indices since 2017. Foreign currencies regained some of their strength against the dollar, thanks to easing U.S. inflation and less hawkish expectations for the Fed. European markets led on the upside, and with the energy outlook improving considerably the regional positioning was increased from underweight to near neutral. The recession question looms large in 2023, but even though the U.S. economy may hold up better than some in Europe and elsewhere, we believe that deeply discounted valuations and an attractive sector mix make a case for international equities’ continued outperformance.