Major global share markets in USA, Europe, Asia and Australia had their worst year since 2008, and ended a three-year winning streak. Global equity markets lost $33 trillion in value from their peaks in January 2022. In 2022, the US share market (S&P 500 index) was down 20% for the year, and the US technology sector (Nasdaq Index) closed to its lowest level since July 2020, falling 33%. European stocks also had a poor year, down 11.8%, securing their worst annual run since 2018. The Australian share market (ASX All Ordinaries Index) fared relatively better, but was still down 7.7%.
Russia’s invasion of Ukraine, blocked supply chains and another year of Covid impacts, turned markets on their head this year. Inflation surged around the world and central banks hiked interest rates at a historic pace to keep inflation from spiralling out of control. China, the world’s second-largest economy, periodically shut down entire cities to contain the pandemic. Energy supplies were cut off, but recession fears sent demand falling in the second half of the year. Global weather-related events such as intense storms, floods, and extreme weather also added to market volatility.
And while stocks had a bad year, bonds fared equally poorly. Inflation, large interest rate hikes and a strong US dollar left bonds unattractive to investors. The return on the US Treasury Bond Index was -10.7% in 2022. The 30-year US Treasury bond, at its low, sunk to its worst return in a century, -35%. Corporate bonds had a poor 2022 as well: the return on bonds issued by S&P 500 companies was -14.2% this year.
The Bloomberg Aggregate US Bond Index had its worst year since the index’s inception in 1977. Inflation, which briefly rose above 9% in the United States (40-year high) hurt economic growth (even as consumers continued to spend), and damaged corporate profits.
There were some winners. Global energy and mining stocks performed well as oil, gas and commodity prices surged in 2022. The energy sector has returned more than 60% this year, significantly outperforming every other sector. No other sector has gained even 5% year-to-date.
Growth stocks, or shares of companies that are expanding their business quickly, got heavily sold off. Investors value these firms based on expectations for future profits. Those look less enticing in a world in which interest rates are going up. Tesla is down about 70%, making the auto tech company the third-worst performer this year. Meta, Facebook’s parent company, also makes an appearance in the bottom 10 stocks — down 64% in 2022. That’s a huge shake-up: at the start of this year, Tesla was the fifth-most valuable company in the S&P 500 and Meta was sixth. Tesla is now the 11th most-valuable firm in the index and Meta is in 19th place. Even Amazon, Apple and Microsoft — tech names that have become staples for investors — took major knocks as investors adjusted to an environment in which rates are rising.
Despite the poor year in investment markets, investors should always focus on the long-term investment returns in local and global share markets. Over the past 70 years, shares have returned approximately 9.5% per annum. Years such as 2022 are statistical anomalies, and should be viewed as long term buying opportunities.
Please note that this is general advice - please call me on 07 3876 8131, or any of my Bennett & Co adviser team - Michael Lynch on 0412 144 574 or Tony Garnham on 0457 102 699, if you would like to discuss in regard to your personal share portfolio and individual circumstances.
Regards,
Richard Bennett – Managing Director
Bennett & Co Financial Services