Schwab Intelligent Portfolios & Q4 2022 Market Performance¹

Upbeat intro music plays in the background. 
The Charles Schwab Intelligent Portfolio logo animates on. 
The logo shrinks to the bottom right corner as the outline of a white square animates on with the text, "Schwab Intelligent Portfolios^® Market Commentary Q4 2022" within it. 
The title screen fades away to reveal speaker David Koenig in front of an abstract white and blue background. 
On Screen text: David Koenig, CFA^®, FRM^®, Chief Investment Strategist, Schwab Intelligent Portfolios.

Hello, I'm David Koenig, Chief Investment Strategist for Schwab Intelligent Portfolios, with your quarterly and year-end update. The fourth quarter of 2022 brought a rally for both stocks and bonds, though markets remained volatile through year-end as an exceptionally challenging year came to a close. While the Federal Reserve and other global central banks played Grinch with additional rate hikes that appeared likely to continue into the new year, inflation showed signs of moderation that could potentially benefit markets in 2023. 

The screen fades to an interstitial screen reading, "How markets performed in Q4 2022." That screen fades to reveal a chart labeled: "Equities saw a rally across the board in Q4." 
A dark grey line animates on the chart, representing U.S. Large Cap Stocks in the S&P 500 Index. The line depicts a 3% rise from January 2021 to January 2023.

Equity markets rallied across the board in Q4 as inflation eased further from its recent highs, though December brought renewed volatility as global central banks remained hawkish.  

A second line appears on the chart, in blue, (representing International Stocks MSCI EAFE Index) and starts at 0% in January 2021. It ends at a negative 9% drop in January 2023.

International stocks led for the quarter with double-digit gains, aided by a softening US dollar.

A third line appears on the chart, in purple, (representing U.S. Small Cap Stocks Russell 2000 Index) and starts at 0% in January 2021. It ends with a negative 10% loss in January 2023. The chart fades to reveal David again.

U.S. stocks also delivered solid gains for the quarter, and fundamental index ETFs outperformed their market cap-weighted counterparts across all five major equity asset classes as value stocks continued to outpace growth stocks.

While the turn positive in Q4 was welcome it was not enough to overcome the significant declines earlier in the year, with stocks ending the year down double-digits in their weakest year since 2008. 

The screen fades to an interstitial screen reading, "How bonds performed in Q4 2022." That screen fades to reveal a chart labeled: "Bonds rallied in Q4 as interest rates eased from recent highs."

Five bars animate on showing YTD Return % for: Emerging Bond Markets (5.89%); High-Yield Bonds (4.34%); Investment-Grade Corporate Bonds (3.44%); Mortgage-Backed Securities (2.05%); Treasuries (1.28%). 

Bonds also rallied in Q4 as longer-term interest rates eased from their recent highs. However, the yield curve further inverted, with short-term rates higher than long-term rates, indicating elevated recession risk. 

The screen fades back to David on the left with a text list labeled "2022 key points" building on to his right, reinforcing what he is saying. 

For the full year, bonds remained deeply negative due to the Fed's aggressive pace of rate hikes, with the worst year on record for the Aggregate Bond Index. While negative returns for both stocks and bonds in 2022 presented an exceptionally challenging year for investors, defensive asset classes such as cash and gold played their role in helping to moderate overall portfolio declines. Cash was the top performing asset class, underscoring why it's an important part of a well-diversified portfolio.

The list now says: 2022 key points: Bonds deeply negative due to interest rate hikes; The worst year on record for the Aggregate Bond Index; Defensive asset classes helped moderate declines; Cash was the top-performing asset. 

The screen cuts to a chart labeled "Unemployment remained at historically low levels." A line ending in Jan 2023 stops at a 3.7% unemployment rate. 

As the year ended, overall economic growth remained solid, though corporate earnings softened considerably and growth expectations for coming quarters saw significant cuts. And an already weak housing market slowed further as mortgage rates remained at their highest levels since 2008. 

On a brighter note, unemployment remained at historically low levels...

A new chart appears labeled "Inflation appears poised to drop in coming months." A line depicting Percentage Change from a Year Ago ends in 2023 at about 4.75%. 

and inflation appeared poised to continue to move lower in coming months, with prices for gasoline falling to their lowest level of the year. 

A new chart fades on labeled "Gasoline prices fell to their lowest level of the year." A line depicting dollars per gallon ends at January 2023 just under three dollars. 

The screen fades to a dark blue background with white on-screen text centered in a white box that reads, "How Schwab Intelligent Portfolios performed in Q4 2022." The screen fades away to return to David.

For Schwab Intelligent Portfolios, Q4 brought the strongest quarter in two years, though the pressure across both stocks and bonds in previous quarters resulted in negative returns for the year. 

The screen fades to show an outline circle depicting growth charts. There are sections denoting allocations of stocks, cash, fixed income, and commodities. The caption says, "Growth portfolios saw strongest Q4 gains but biggest declines for the year."

Growth portfolios saw the strongest gains in Q4, but the biggest declines for the year due to their emphasis on stocks. 

The allocations in the circle shift with the caption changing to "Moderate portfolios saw strong Q4 gains but sizable declines for the year." 

Moderate portfolios saw strong gains in Q4 but sizable declines for the year due to their balanced mix of stocks and bonds. 

The allocations in the circle shift again with the caption changing to "Conservative portfolios saw solid Q4 gains but sizable declines for the year." 

And Conservative portfolios saw solid gains in Q4, though they also saw sizable declines for the year due to the unprecedented pressure on bonds in 2022. 

The screen transitions back to David. A banner appears along the bottom of the screen reading, "For volatility strategies and FAQs, visit schwab.com/downturn."

As we move into 2023, it's important to look forward rather than in the rear-view mirror. While 2022 was an exceptionally challenging year, interest rates are now at higher levels, resulting in higher yields on bonds. And while the Fed appears poised for additional rate hikes, the pace has slowed and may slow further if inflation continues to ease as expected. While market volatility is likely to remain elevated due to the economic uncertainty, potentially lower inflation and a pause in rate hikes at some point could help support markets going forward. 

A blue bar enters the screen and text builds on reading: Schwab Intelligent Portfolios can help you:

• Keep costs low.
• Adhere to time-tested investment principles.
• Diversify your portfolio.
• Rebalance periodically.
• Stick with your long-term plan. 

These inevitable periods of market turbulence underscore the importance of focusing on what you can control, such as keeping costs low, and adhering to time-tested investment principles, such as those used by Schwab Intelligent Portfolios, of diversification, periodic rebalancing and sticking with your longer-term plan. 

The screen fades to a solid dark blue background with the text: Additional Resources. We are here 24/7. Contact a service professional at (855) 694-5208. Learn more. Investing Insights blog at intelligent.schwab.com. Volatility strategies and FAQs at schwab.com/downturn. 

As always, we have many online resources available to help you navigate the current environment as you work toward your financial goals, and we're available by phone to answer any questions. 

The screen transitions back to David.
Thank you for watching. We wish you the best of success in 2023, and we look forward to continuing to serve you in the coming quarters and years. 

The screen fades to the same animated Schwab Intelligent Portfolios logo sequence from the beginning of the video. It then shrinks and moves to the center top of the frame. The following disclosures appear below the logos:

Investment Products: Not FDIC-Insured * No Bank Guarantee * May Lose Value 

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

This quarterly commentary is designed to provide you with insight into the market environment during the quarter. How your portfolio performed is dependent upon your asset allocation across the risk spectrum from conservative to aggressive, as well as criteria such as when you opened your account, the timing of any deposits/withdrawals, timing of portfolio rebalances, whether you are enrolled in tax-loss harvesting and other criteria.

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Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Investing involves risk including loss of principal. 

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