With economic slowdown uncertainties mounting, impacting sentiment, markets reversed course into year-end. While inflation appears to be slowing, it remains at multi-decade highs, with further tightening likely ahead.
GLOBAL MARKETS
US MARKETS
US equities struggled in 2022, with double-digit negative returns for the year
Despite a rebound earlier in the fourth quarter, US equities had a poor end to 2022, with headline indices producing double-digit negative returns overall for the year. From a sector standpoint, the poorest performers were cyclicals and technology. On a positive note, year-on-year CPI has slowed for five consecutive months, leading the Federal Reserve to raise policy rates less than originally expected by the market. However, PMI figures fell deeper into recessionary territory, forward earnings declined, and with the labour market remaining tight, the cycle of ‘rate-hiking’ may not end in the short-term. Down -5.9% (US 500)
UK MARKETS
Despite negative returns, the UK outperformed most developed markets in December
The UK declined but comfortably outperformed developed market peers in December. This performance was due, in some part, to index composition, with the FTSE comprised of a higher number of consumer staples and commodity-focused companies, which performed better. However, growth sensitive stocks languished, as PMI’s remained in negative territory but steadied, and yields rose. Inflation remains the key cause of concern, although there are signs that it is reaching a peak. The Bank of England raised interest rates 50 basis points higher, and it’s guidance remains hawkish going into the first quarter. Down -1.6% (UK All Share)
EUROPEAN MARKETS
Inflation and the war in Ukraine continue to impact the region
European risk assets declined through the month as persistent inflation and the ongoing war in Ukraine remain on the forefront of investors’ minds. Headline stock indices declined but outperformed most developed-market benchmarks. Bonds yields moved higher, and the euro broadly appreciated (except against the Yen). Although PMI’s improved marginally, and near-term inflationary readings are slowing from their recent rampant increases, the Eurozone may likely be in a recession already. Despite this, the ECB raised policy rates 50 basis points higher at their last meeting, and a hawkish Governor Christine Lagarde continues to suggest more increases are to be expected. Down -3.4% (Euro 600 Index)
JAPAN MARKETS
An appreciating Yen impacts Japanese equity performance
Performance was mixed, as equities saw steep declines in light of a rapidly appreciating Yen. The Japanese domestic market is enjoying stronger earnings results, record levels of share buybacks and less inflationary pressures than their developed market counterparts. Composite PMI’s have moved out of contractionary territory and the government has announced a fiscal package to bolster the domestic recovery seen toward the second half of the year. The Bank of Japan has also moved toward policy normalisation on 10-year bond yields, which has driven domestic currency valuations and investor confidence Down -4.7% (Japan Index)
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Jennifer Turner
