Market update: December 2022

The 'Grinch' did good business 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 FED announced interest rate hikes in 2023. That burst the bubble of optimism that had arisen over the past two months.

Bonds, like stocks, proved volatile in December after interest rates briefly shot up in Europe and Japan. The US 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 suffered in December, after the euphoria of the easing in China quickly turned due to rapidly increasing COVID infections.

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

Markets are dealing with changing sentiment due to 'aggressive' central banks and rising COVID infections.

Developed market equities faced two challenges in December: central banks and an increasing 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 is reminding everyone 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. Stocks in Europe followed their American counterparts, resulting in a decline in both the Stoxx 600 in Europe and the S&P 500 in the US.

A bright spot in the dark month of December was the fall in 'raw 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 down. Initially, this caused a lot of optimism, but that enthusiasm quickly turned due to the growing number of infections. The expectation is that the situation in China will worsen before it improves.

US and European 10-year yields diverge 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 resulted in poorer results on Global Equities and High-Yield Bonds. Money market rates continued to rise in Europe, and this is expected to continue in 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 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 the up and down market into account. Ultimately, a good plan and diversified portfolios are the key to long-term success. Consistent and periodic investing in periods like these is crucial to benefit in the long term.

Good to know

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