Market update: December 2022

The ‘Grinch’ was busy during the Christmas period, as December turned out to be a tough month for the markets. In their ambition to combat inflation, both the ECB and the FED announced interest rate hikes in 2023. This burst the bubble of optimism that had emerged over the past two months.

Bonds, just like equities, proved volatile in December after interest rates briefly shot up in Europe and Japan. The US dollar cleverly took advantage of this in its value against the Japanese Yen and the Euro. Surprisingly, crude oil and gas prices eased the situation, due to a severe winter in the northern hemisphere. Emerging markets took a hit in December after the euphoria of China's relaxations quickly turned sour due to rapidly increasing Covid infections.

Best fund performance in December 2022: UBS (Lux) Money Market Sustainable Fund +0.11%

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Markets are dealing with changing sentiment due to ‘aggressive’ central banks and rising Covid infections.

Developed market equities faced two challenges in December: the central banks and a growing number of Covid infections in China. The Federal Reserve meeting in December resulted in an interest rate hike in the US (0.5%) and indicated more rate hikes in 2023. With this, the FED reiterated the message that combating inflation is the highest priority for central banks in the United States, even if they have to cause some short-term pain in the market to achieve this. European equities followed their American counterparts, resulting in a fall in both the Stoxx 600 in Europe and the S&P500 in the US.

A bright spot in the dark month of December was the drop in ‘crude prices’ for oil and gas in Europe during the month, much to the relief of consumers who were hit by an unexpectedly severe winter.

Emerging market equities performed better than the developed variant, particularly due to the announcement that the Covid policy in China was being scaled back. Initially, this created a lot of optimism, but that enthusiasm quickly turned sour due to the growing number of infections. The situation in China is expected to worsen before it gets better.

American and European 10-year yields diverged for the first time this year, with 5 basis points in the US and 30 basis points in Germany.

High-yield Bonds and Corporate Bonds showed a negative return, but since the ‘credit spreads’ (the difference in interest rates between two different types of bonds) are not widening, this is generally a good sign that the financial market is stable.

The value of the Euro against the Dollar (EURUSD) revalued during the month. From a Euro perspective, this led to poorer results on Global Equities and High-yield Bonds. Money market rates continued to rise in Europe, which is expected to continue into the following month after the ECB meeting in December.

What does January have in store for us?

🔮 Quarterly results and inflation data, which play an important role in assessing the risk of a recession and in determining the rhythm of interest rate hikes in 2023.

What does this mean for my plans?

Do not let the market disrupt your long-term goals. Vive's investment strategies take the ups and downs of the market into account. Ultimately, a good plan and diversified portfolios are the key to long-term success. Consistent and periodic investing during periods like this is crucial to profiting in the long term.

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Vive's statements are compiled to inform and entertain. The content should not be considered financial advice. Asset management involves risks.

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