Many investors will be filled with regret after a volatile 2022. In particular, investors who piled up risky assets at the top of the market last November saw a sharp drop from their highs.
The investment world has been turned upside down this year by more than just the war between Russia and Ukraine.
Also, the energy shock, the ongoing coronavirus lockdown in China, and most importantly from an investment perspective, inflation is back again after more than 40 years, ending the era of low interest rates. .
The longest US bull market in history has finally come to an end as interest rates rise as decades of near-zero interest rates and fiscal and monetary stimulus come to an abrupt end.
Money is no longer cheap and plentiful, and investors need to pay more attention to it, clearing the noisier corners of the market.
Perhaps the bigger shock is that the safe asset class has also crashed. I have many regrets, but I look forward to next year.
The U.S. S&P 500 enjoyed a great decade as technology companies Amazon, Apple, Microsoft, Tesla, and Alphabet, owner of Google, grew into trillion-dollar companies. Very simply) in Google’s case, it’s a $2 trillion company.
But this year, the S&P 500 is down more than a quarter and the Nasdaq is down a third.
Amazon, Netflix, and Tesla have lost half their value this year, while Facebook (now renamed Meta Platforms) has lost two-thirds of its value.
Investors buy growth companies to share in future profits, but when inflation explodes, they effectively lose the value of those earnings, making them unattractive.
The outlook for U.S. technology in 2023 now hinges on movements in consumer prices and interest rates, according to Joshua Mahoney, senior market analyst at online trading platform IG.
“Microsoft, Meta, Amazon and Google are all profitable these days, but if inflation proves to be difficult to control, these same-named companies could be hit hard.” he adds.
Stéphane Monnier, chief investment officer at private Swiss bank Lombard Odier, said the stock market now offers a buying opportunity.
“Equity valuations and multiples will benefit as the threat of inflation and rising interest rates begins to fade.”
Easing financial conditions will boost sentiment and investors will start expecting a cyclical recovery in 2024, he said.
The system prescribes: Surprisingly low.
The bull market must end at some point, and long-term investors in US technology should still be well ahead. Tesla’s stock has risen 585% in his five years. In ten years he was up 6,869%.
See: Why is everything so expensive now?
War in Ukraine, soaring energy prices, a lockdown in China, a global recession and a strong U.S. dollar have been tough on emerging markets, which fell 17.43% in the year to Nov. 30, according to MSCI.
Still, Monnier expects emerging market stocks to rebound if the Federal Reserve “pivots” interest rates. It could outperform developed markets as international investor appetite and confidence recovers.
The system prescribes: low.
We all knew emerging markets were dangerous. recovery will come.
A hardcore crypto investor will not regret it. As with most cults, setbacks are usually seen as another step into the Promised Land.
Even Bitcoin’s crash from $67,000 to $16,500 did not dampen the enthusiasm for this largely useless asset class. Nor has FTX gone bankrupt or his founder Sam Bankman-Fried arrested for fraud and conspiracy.
Bitcoin actually rose in the news as crypto investors saw this as another step towards regulation and publicity.
Laith Khalaf, head of investment analytics at AJ Bell, says cryptocurrencies will continue to morph from feast to famine.
Proliferation of coins and crypto ecosystem is being funded by a wall of blank checks that become harder to come by as interest rates rise
Laith Khalaf, Head of Investment Analysis, AJ Bell
“The proliferation of coins and the crypto ecosystem has been fueled by a wall of blank checks that have become harder to come by as interest rates rise.”
The system prescribes: Not as high as it should be.
Anyone who has embraced the idea that Bitcoin is “digital gold” should regret it after this year’s crash. If crypto investors are unaware of the risks they are taking, there is no hope.
No one will regret holding the US dollar this year. At the time of writing, he is up more than 7% against the Euro, Australian, Canadian and New Zealand Dollars, almost 10% against the Pound and almost 20% against the Japanese Yen.
The U.S. dollar is the ultimate safe haven asset, further boosted by the Fed’s aggressive monetary tightening.
Fawad Razaqzada, Market Analyst at City Index and Forex, said: “The Fed’s hawkish stance and the relatively strong US economy are still outperforming other major currencies.
The Fed raised its interest rate from 0.5% to 4.4%, giving investors better returns.
Watch: US Federal Reserve warns of ‘pain’ of keeping inflation in check
As long as inflation and interest rates stay high, so will the dollar, according to Razakzada.
“The Fed would have to be pretty dovish to force the dollar to depreciate significantly from its current levels.”
The system prescribes: zero.
If inflation eases, the US dollar will inevitably fall. But it ran great.
Gold is considered the ultimate ‘no regrets’ investment due to its safe-haven status and reputation as a hedge against inflation, but this year has been a huge disappointment.
After peaking at $2,074.60 on March 8, the gold price dipped below $1,700 in September and recovered slightly to $1,775 at the time of writing.
Gold is priced in the U.S. dollar, and the strength of the U.S. dollar has made it more expensive for buyers in other currencies, hitting demand similarly to China’s lockdown.
And while cash, a rival safe haven asset, pays interest, gold does not.
The Fed must be pretty dovish to bring the dollar down significantly from its current levels
Fawad Razaqzada, Market Analyst, City Index and Forex
Gold could regain some of its lost charm this year, Monnier said. “Lower interest rates, a weaker dollar and the reopening of China’s economy should push prices higher.”
The system prescribes: surprisingly high.
Gold has been a valuable reservoir for over 4,000 years, but not this year. It’s worth keeping the exposure as a wildcard in your portfolio.
After more than a decade of near-zero returns, cash is now flying at a rate of over 4% per annum without risk.
However, with inflation rising significantly, the value of holdings is still declining substantially.
The system prescribes: low.
Everyone needs to keep some cash, and the great news is that savers can finally get their money back. But it’s still not home to long-term wealth.
Investors expect stocks to crash. Bonds, to a lesser extent. Especially with up to 20% increase like this year.
Bonds could make a comeback next year, says Kathy Jones, head of fixed income at Charles Schwab.
“After years of low yields followed by a significant drop in prices in 2022, returns look poised to pick up. It could offer a yield.”
Jones warned that it could still be a “bumpy road” depending on “tightening policies of global central banks, a volatile global economy and ongoing political uncertainty.”
The system prescribes: Quite expensive.
Fixed income investors expect to be protected from volatility, not exposed to it. Still, today could be an attractive buying opportunity.
Updated: December 20, 2022, 5:00 AM