Quarterly Market Outlook and Review: Q4 2022
2022, the year of ‘Economic Hangovers’.
2022 was a year of surprises and proved to be the most challenging year for investors since the 2008 Global Financial Crisis. The post-COVID recovery, brought booming equity markets in 2020 and 2021 as the global economy experienced its strongest rebound in economic growth on record. At the turn of the year, expectations were for global growth to continue above trend, although normalise as the reopening tailwind slowed. However, 2022 ended up being the year of economic hangovers from COVID lockdowns and its unprecedented fiscal stimulus. Global supply chains were stretched to their limits, China maintained its zero-COVID policy, a major war in Europe sent oil, gas and food prices soaring and labour demand surged, creating a perfect storm for higher inflation. As such, the Federal Reserve was quickly forced to change their rhetoric around transitory inflation as they embarked on the fastest rate hiking cycle in history. Other central banks soon followed suit, fuelling the global sell-off.
The final quarter of 2022 rounded off the year with another volatile period for equity markets. The summertime rally, fuelled by early signs of inflation peaking, a China reopening and resilient S&P500 corporate earnings growth of 9.2% unfortunately gave way to new bear market lows in mid-October as the Federal Reserve stressed their higher for longer message. This coincided with the US 10 Year Treasury yield peaking at 4.25%. From there, similarly to what we witnessed in March and July, equity markets rebounded strongly, and bond yields retraced through to early December as inflation readings showed clear signs of cooling and mass protests in China ignited reopening optimism. However, equity markets ended the year on a slightly sour note, giving away some of their gains in the final weeks of December as light trading volumes exacerbated stock moves.
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