Market update: December 2022

The "Grinch" did good business over the Christmas period, as December proved to be a feisty month for the markets. In their ambition to fight inflation, both the ECB and Fed announced interest rate hikes in 2023. That burst the bubble of optimism that had been building for the past two months.

Bonds, like stocks, proved volatile in December after interest rates shot up briefly in Europe and Japan. The U.S. dollar took advantage of this in value against the Japanese Yen and Euro. Surprisingly, crude oil and gas prices softened the situation, due to a harsh winter in the northern hemisphere. Emerging markets were on the brink in December, after the euphoria of easing in China was quickly reversed by rapidly rising covid infections.

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

Markets face changing sentiment due to "aggressive" central banks and rising covid infections.

Equities developed markets faced two challenges in December. Central banks and an increasing number of covid infections in China. The December Federal Reserve meeting ended with a rate hike in the US (0.5%) as well as indicating more rate hikes in 2023. This is a reminder from the Fed that fighting inflation is the top priority for central banks in the United States. Even if they have to cause some short-term pain in the market to achieve this. Equities in Europe followed their U.S. counterparts. What resulted was a decline in both the Stoxx 600 in Europe and the S&P500 in the US.

A bright spot in the darkness of December was the drop in "crude prices" for oil and gas in Europe during the month. Much to the relief of consumers hit by an unexpectedly harsh winter.

Emerging market equities outperformed the developed variety. Primarily due to the announcement that the covid policy in China was being scaled down. Initially this created a lot of optimism, but that enthusiasm quickly fizzled due to the growing number of infections. The situation in China is expected to get worse before it gets better.

U.S. and European 10-year yields diverged for the first time this year, by 5 basis points in the U.S. and 30 basis points in Germany.

High-Yield Bonds and Corporate Bonds showed negative returns, but since "credit spreads" (the difference in interest rates between two different types of bonds) did not widen, 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. This caused, from a euro perspective, weaker results on Global Equities and High Yield Bonds. Money market rates continued to rise in Europe, expected to continue into next month following the December ECB meeting.

What does January have in store for us?

🔮 Quarterly earnings and inflation data, which play an important role in estimating the risk of recession as well as in determining the pace of interest rate hikes in 2023.

What does this mean for my plans?

Don't let the market disrupt your long-term goals. Vive's investment strategies take into account market ups and downs. Ultimately, a good plan and diversified portfolios are the key to long-term success. Consistent and periodic investing during periods such as these is crucial to profit in the long run.

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