The dominant force driving 2022 market performance and investment returns was inflation. Resurgent inflation to 40-year highs led the Fed to hike interest rates by 7 times or totalling about 425 bps, to try to get inflation under control. This resulted in a cratering bond market and sending the stock into a bear market that continued into end-2022
However, by the end of 2022, relief over potential slowing in the Fed’s interest rate hikes was replaced by concerns that the economy was both currently too strong to allow inflation to come down significantly and, at the same time, that a recession looked increasingly likely in 2023.
The 4Q22 brought much-needed relief for both global stocks and bonds. The Morningstar US market index ended 2022 down 19.4%, its biggest annual loss since 2008. Oil prices went on a round trip in 2022, rocketing to a high of US$106 per barrel in March as Russia's invasion of Ukraine limited oil supplies. Prices moderated after the summer, and oil finished in 2022 at around US$80. Cryptocurrency had a painful year as the largest, bitcoin, losing over US$550 billion in market cap or declining 64.7% as a series of crises at major trading platforms shook investor confidence.
The US dollar started 2022 on a tear, rising to its highest levels in 2 decades by 3Q22. The US dollar weakened during the 4Q22 as inflation showed clearer signs of having peaked.
No comments yet