Market Review for 2022 and Looking Forward Too
Published / Last Updated on 22/12/2022
January 2022 - We started the year with a positive view for growth, after years of Brexit and then Covid-19 lockdowns, the UK was the fastest growing economy in the G7 nations. That said, we also warned of inflation and interest rates that had already suffered its first increase in December 2021 to continue stepped rises and to temper growth.
February 2022 - The Russians invade Ukraine. With sanctions against Russia, energy and fuel costs increased significantly and sentiment moved negative with stock markets falling 20% over the coming few months and inflation increasing.
March/April 2022 - We revised inflation and interest rate forecasts and suggested we all needed to reduce our debt and fix our mortgage rates before interest rates start to rise. We forecast inflation in double figures and then interest rates to rise faster in the year.
October 2022 - Kwasi Kwarteng and Liz Truss’s failed Mini Budget. Tax cuts and increased spending to stimulate the economy with no plans to repay the additional debt of c£70bn. This was ill received and confidence in the UK government to manage the economy collapsed. Stock markets that had recovered, fell back again. At the same time, the £ slumped and UK gilt/bond yields increased (i.e., investors would only lend the UK government more money at a much higher interest cost). This pushed the capital value of existing gilts down to achieve a similar higher yield if investors bought existing issued gilts. The pushed our fixed interest in fund values down as well as our stock market funds. At one point every single asset class was falling in value meaning every single investor on the planet was losing money.
Looking forward to 2023
- Inflation fears still abound.
- Prices are not falling but the rate of prices increasing will slow.
- China has loosened its zero tolerance to covid-19, but fears are that the world’s 2nd largest economy will slow down and drag markets down with it.
- There will be no economic miracle, some forecasters suggest that blue chip stocks such as the FTSE 100 will power up to new highs as blue chips ride recession out better than smaller companies.
- We still expect 18 months of ‘bouncing ball’ markets but even the best commentators on the planet cannot get it right all of the time. We cannot ‘call it’.
That said, in the medium term, 4-5 years, we expect recovery. We expect inflation to have pushed the ‘level playing field’ or the ‘natural water table’ i.e., normal market trading ranges to be much higher. In short, markets will recover and grow. Inflation is already pushing prices up, we are also seeing wage increase demands and industrial dispute and in turn, wages will rise, businesses will increase their prices and profits will artificially be higher meaning share prices rise.
