This time last year we were talking about 2021 as a record-breaking year during which many major financial indices hit their all-time highest levels, well; 2022 could not have been more different. Central banks all around the world had to raise Interest rates because of Inflation, this put an end to the supply of cheap money that has fuelled a golden decade for investors. Add in the consequences of the war in Ukraine and were left with the worst year in global financial markets since the 2008 financial crisis, Global stocks have lost about a fifth of their value during the last year.
While we are all well aware of the mantra “past performance is not a guide to future performance” it can still be beneficial to look back, reflect on how markets have performed and more importantly see if this information can be used to shape future investment decisions. With that in mind, Let’s have a look at how some of the major market Indices performed throughout the year
The MSCI World Index, which is a benchmark Index for the Global Economy was down by 20% for the year,
That’s the worst performance in 14 years, since the global financial crisis wiped 40% off stock values in 2008.
The US was particularly badly hit with its three major Indices registering their biggest one-year percentage declines since 2008, with the S&P 500 posting a 19.4% fall for 2022, the Dow Jones losing 8.7% for the year and the tech-focused Nasdaq Index losing a third of its value, finishing down 33%. Tech stocks were particularly hit, The FAANGs – an acronym referring to the big five tech companies, Meta (formerly Facebook), Amazon, Apple, Netflix and Alphabet (formerly known as Google) – were far from immune. Apple fell 27%, Amazon’s share price halved, while Facebook owner Meta fell 65% and Tesla also lost about two-thirds of its value in 2022,
While lost European stocks outperformed their US counterparts the EuroSTOXX 600 Index still fell by about 12% in 2022, its worst performance since 2018.
Closer to home the ISEQ Index of Irish shares finished the year down by more than 15%. The UK was an exception to the rule with London FTSE 100 Index finishing the year with a small gain of +0.9% driven mostly by soaring energy prices.
In commodities, oil prices rallied in 2022 posting a second straight annual gain after a wildly volatile year marked by supply issues due to the Ukraine war and then sliding demand from China. In March, following the Russian Invasion of Ukraine, Oil reached its highest point since 2008, touching $139 a barrel but prices then fell back by 40% ending the year about $83 a barrel, on concerns that the global economy was weakening.
Bonds are usually seen as a ‘safe-haven’ for Investors during times of volatility in Equity Markets. When Equity Markets perform poorly then Bond markets traditionally perform strongly and vice versa. Bonds have historically been a shock absorber, helping sustain portfolios when Equities plunge. But that Inverted relationship broke down during 2022 and bonds did not fulfil their traditional role. In fact, US & European Bond Investors both had one of their wors years ever. The implosion was as a result of the ECB & US Federal Reserve aggressively raising interest rates in order to fight inflation,
The classic Investment portfolio is the 60/40 Split. 60% of a portfolio in stocks and 40% in bonds is supposed to hedge against both assets dropping simultaneously. But it didn’t pan out that way in 2022, in fact a typical 60/40 portfolio was down approx. 15% during the year. Many investment experts believe that by sticking with the 60/40 split over the long term you would be in an ideal position to benefit from strong future gains.
For anyone who might be interested, Bitcoin lost two-thirds of its value during 2022 (Although I’m not sure if this news belongs in a Financial Review of the year)
As regards prediction about 2023, we all know how futile that might be. After all, how many Economists and Market Experts who could have predicted the events of recent years such as the Covid Pandemic, The Ukrainian War etc…
Does all of this “noise” really matter though if you’re a long-term Investor? The answer is NO.
As a long-term investor you should not be too worried about the short-term volatility. The truth is that this type of volatility is not uncommon, it appears dramatic because we’ve just come through a remarkably placid period. Markets will fall at least one out of every 4 years yet over the long run Equities will still outperform every other asset class. One thing remains constant, a well-diversified, risk appropriate Investment portfolio will always perform well over the medium to long term.
Barry Kerr BBS QFA CFP® is the Managing Director of Wealthwise Financial Planning, Hartley Business Park, Carrick on Shannon, www.wealthwise.ie. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.
