2022 Was Not a Bear Market

Apr 10, 2023

2022 Was a Rough Year

2022 may have been a painful year for the economy, and many are wondering whether the Federal Reserve will ease up on interest rate hikes. Currently, we’re seeing the fastest rate increases since the days of former Fed Chair, Paul Volcker, in the 1980s.

Massive Devaluations of Companies

In 2022, we saw median pre-money Series A valuations drop by 50% from $79M to $39M. There was a 74% decline for Series B valuations, an 87% decline for Series C valuations. Median pre-money Series D valuations fell dramatically by 92% from $3.47 billion to $290 million. [Note: This is for companies that had to raise in 2022.]

Historic Destruction of Wealth

We are witnessing the largest drawdown and wealth destruction that we have seen in decades.

Layoffs and Increasing Unemployment

There were 15.4 million layoffs in the United States in 2022. Many of the companies that led the 10-year bull market rally such as Amazon, Meta, and Google, also led the round of layoffs as they adapted to the new economic environment of rapidly rising interest rates. Announcements of planned layoffs seem to continue into 2023. [See TechCrunch article for more stats.]

Despite the above doom and gloom, we don’t believe 2022 was a bear market.

We believe 2022 was simply a re-rating of the economy.

Why?

2022 Was not a Bear Market

Data Point #1: The Yield Curve

The yield curve usually starts to dis-invert as you enter a bear market. In 2022, the yield curve inverted while stocks fell.

Data Point #2: Bond and Equities Correlation

Rather than moving in opposite directions, bond and equity prices moved in unison in 2022.

Data Point #3: The Economy Remained Relatively Strong

Despite the concerning statistics we mentioned earlier in this post, the economy remained relatively strong in 2022. For example, consumer spending (adjusted for inflation) remained higher than 2021 levels. Although the tech sector announced massive layoffs, overall employment remained relatively high. The Department of Labor announced that unemployment rate fell to a historically low 3.5% and that 4.5 million jobs had been added in 2022. [Source]

2023 is the Year of the Bear

For the first time in a while, we saw bonds rise as equities were falling. All signs of an impending bear market. The yield curve went back to -50bps from -100bps. These are much stronger signs of a natural bear market than the signs we witnessed in 2022.

So What

If you’re an accredited investor, wealth preservation rather than wealth growth will be the name of the game for the next few years. When you lose 90%, hitting that 10x return investment becomes extremely difficult. Investing into funds that aim to provide wealth preservation through uncorrelated strategies could be beneficial during times of market volatility.


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Track Record Disclosures

For more details, see our ADV Part 2A.

Communications from Towards Equilibrium Inc. (Equi) and Equilibrium Ventures, LLC (EquiV) (collectively, “Equilibrium Ventures”) are intended solely for informational purposes, and should not be construed as investment or trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any such offer or solicitation can only be made by means of the delivery of a Confidential Private Placement Memorandum, which contains a description of the significant risks involved in such an investment. All figures are estimated and unaudited unless otherwise noted. Past performance is not necessarily indicative of future results. Equi is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, or any state securities regulatory authority.

EquiV is registered as an investment adviser with the Texas Securities Board. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the entity. The opinions and predictions expressed on this website represent the current, good faith views of Equilibrium Ventures at the time of publication, are provided for limited purposes, and are not definitive investment advice. Predictions, opinions, and other information on this website are subject to change continually and without notice of any kind and may no longer be valid after the date indicated. By using this website, you accept our Terms of Use, Privacy Policy, and Privacy Notice. Equilibrium Ventures, LLC is carrying on the business of, or registered and authorized to, provide investment advice only in the jurisdictions where they are lawfully authorized. Equilibrium Ventures is neither a law firm nor an accounting firm, and no portion of the website should be interpreted as legal, accounting, or tax advice.

Past performance is not indicative of future results. Diversification does not ensure a profit or guarantee against loss. No material available through the website shall be used or considered as an offer to sell or a solicitation of any offer to buy the securities or services of any of our affiliated entities. Offers can only be made where lawful under, and in compliance with, applicable law. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by EquiV), will be profitable or equal to any historical performance levels. Investments discussed on the website, if any, may not be suitable for all investors. Investors should make their own investment decisions based on their own financial objectives and financial resources and should obtain independent investment and tax advice before deciding to invest. Graphs, charts, tools, and graphics are used for illustrative purposes only, and may not reflect actual future performance. The contents on this website are provided for limited purposes, and should not be considered definitive investment advice. Equilibrium Ventures does not guarantee any minimum level of investment performance or the success of any investment strategy. As with any investment, there is a potential for profit as well as the possibility of loss. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that EquiV or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites unless stated otherwise. Please see our Terms of Use governing the use of this website.

S&P 500 performance obtained from Bloomberg. References to S&P 500 are included for illustrative purposes only. It is not expected that the Equi funds (Equi Balanced Fund, LP or Equi Growth Fund, LP) will make investments in S&P 500 companies. Accordingly, investors should not expect that an investment in the Equi Funds would provide exposure that is similar to an index investment in S&P 500 companies or any other specific benchmark.

Track Record Disclosures

For more details, see our ADV Part 2A.

Communications from Towards Equilibrium Inc. (Equi) and Equilibrium Ventures, LLC (EquiV) (collectively, “Equilibrium Ventures”) are intended solely for informational purposes, and should not be construed as investment or trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any such offer or solicitation can only be made by means of the delivery of a Confidential Private Placement Memorandum, which contains a description of the significant risks involved in such an investment. All figures are estimated and unaudited unless otherwise noted. Past performance is not necessarily indicative of future results. Equi is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, or any state securities regulatory authority.

EquiV is registered as an investment adviser with the Texas Securities Board. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the entity. The opinions and predictions expressed on this website represent the current, good faith views of Equilibrium Ventures at the time of publication, are provided for limited purposes, and are not definitive investment advice. Predictions, opinions, and other information on this website are subject to change continually and without notice of any kind and may no longer be valid after the date indicated. By using this website, you accept our Terms of Use, Privacy Policy, and Privacy Notice. Equilibrium Ventures, LLC is carrying on the business of, or registered and authorized to, provide investment advice only in the jurisdictions where they are lawfully authorized. Equilibrium Ventures is neither a law firm nor an accounting firm, and no portion of the website should be interpreted as legal, accounting, or tax advice.

Past performance is not indicative of future results. Diversification does not ensure a profit or guarantee against loss. No material available through the website shall be used or considered as an offer to sell or a solicitation of any offer to buy the securities or services of any of our affiliated entities. Offers can only be made where lawful under, and in compliance with, applicable law. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by EquiV), will be profitable or equal to any historical performance levels. Investments discussed on the website, if any, may not be suitable for all investors. Investors should make their own investment decisions based on their own financial objectives and financial resources and should obtain independent investment and tax advice before deciding to invest. Graphs, charts, tools, and graphics are used for illustrative purposes only, and may not reflect actual future performance. The contents on this website are provided for limited purposes, and should not be considered definitive investment advice. Equilibrium Ventures does not guarantee any minimum level of investment performance or the success of any investment strategy. As with any investment, there is a potential for profit as well as the possibility of loss. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that EquiV or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites unless stated otherwise. Please see our Terms of Use governing the use of this website.

S&P 500 performance obtained from Bloomberg. References to S&P 500 are included for illustrative purposes only. It is not expected that the Equi funds (Equi Balanced Fund, LP or Equi Growth Fund, LP) will make investments in S&P 500 companies. Accordingly, investors should not expect that an investment in the Equi Funds would provide exposure that is similar to an index investment in S&P 500 companies or any other specific benchmark.

Track Record Disclosures

For more details, see our ADV Part 2A.

Communications from Towards Equilibrium Inc. (Equi) and Equilibrium Ventures, LLC (EquiV) (collectively, “Equilibrium Ventures”) are intended solely for informational purposes, and should not be construed as investment or trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any such offer or solicitation can only be made by means of the delivery of a Confidential Private Placement Memorandum, which contains a description of the significant risks involved in such an investment. All figures are estimated and unaudited unless otherwise noted. Past performance is not necessarily indicative of future results. Equi is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, or any state securities regulatory authority.

EquiV is registered as an investment adviser with the Texas Securities Board. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the entity. The opinions and predictions expressed on this website represent the current, good faith views of Equilibrium Ventures at the time of publication, are provided for limited purposes, and are not definitive investment advice. Predictions, opinions, and other information on this website are subject to change continually and without notice of any kind and may no longer be valid after the date indicated. By using this website, you accept our Terms of Use, Privacy Policy, and Privacy Notice. Equilibrium Ventures, LLC is carrying on the business of, or registered and authorized to, provide investment advice only in the jurisdictions where they are lawfully authorized. Equilibrium Ventures is neither a law firm nor an accounting firm, and no portion of the website should be interpreted as legal, accounting, or tax advice.

Past performance is not indicative of future results. Diversification does not ensure a profit or guarantee against loss. No material available through the website shall be used or considered as an offer to sell or a solicitation of any offer to buy the securities or services of any of our affiliated entities. Offers can only be made where lawful under, and in compliance with, applicable law. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by EquiV), will be profitable or equal to any historical performance levels. Investments discussed on the website, if any, may not be suitable for all investors. Investors should make their own investment decisions based on their own financial objectives and financial resources and should obtain independent investment and tax advice before deciding to invest. Graphs, charts, tools, and graphics are used for illustrative purposes only, and may not reflect actual future performance. The contents on this website are provided for limited purposes, and should not be considered definitive investment advice. Equilibrium Ventures does not guarantee any minimum level of investment performance or the success of any investment strategy. As with any investment, there is a potential for profit as well as the possibility of loss. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that EquiV or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites unless stated otherwise. Please see our Terms of Use governing the use of this website.

S&P 500 performance obtained from Bloomberg. References to S&P 500 are included for illustrative purposes only. It is not expected that the Equi funds (Equi Balanced Fund, LP or Equi Growth Fund, LP) will make investments in S&P 500 companies. Accordingly, investors should not expect that an investment in the Equi Funds would provide exposure that is similar to an index investment in S&P 500 companies or any other specific benchmark.