Camille Van Vyve
18 Apr 2024
2022, a hectic but not catastrophic year
Looking back, we can say that 2022 was a hectic year which, in many ways, was reminiscent of the 1970s: geopolitical tension, energy crisis, galloping inflation, rising rates. But despite these pressures on the financial markets, 2022 was ultimately not a catastrophic year on the stock market. Let's look back on the past year to better understand the year to come.
A start marked by post-COVID euphoria
The year 2022 is off to a good start. Thanks to consumption boosted by the lifting of anti-COVID restrictions, the economy is strong. After a long period of forced savings, households are finally regaining their freedom and the desire to consume. This consumerist frenzy, however, fails to be met by an industry still plagued by logistical problems and overwhelmed by the scale of household demand. This explosive mix lays the groundwork for a sustained rise in inflation, which subsequent events will unfortunately only fuel.
Russia invades Ukraine
The excitement is short-lived. On February 24, Vladimir Putin launches a “special operation” on his Ukrainian neighbor with a view to annexing territories deemed pro-Russian. It is the largest military operation Europe has seen since the end of World War II. Stock markets are anticipating the start of the conflict and are already losing 8% as Russian troops amass on Ukrainian borders, claiming to protect their own. The market finally reacts quite well to the actual invasion and rebounds as of the second week of the conflict to erase almost all of its loss by early April. While many believed in a lightning war, the conflict is bogged down with significant consequences on the prices of energy and certain foodstuffs, further reinforcing inflation.
Rising interest rates
To counter a rise in inflation that no longer seems transitory, central banks have no choice but to raise interest rates. And since they have waited a while not to dampen the recovery, these hikes must be strong and close in time. The FED acts first by announcing on March 16 a rate hike of 0,25%. Five other increases will follow during the course of the year, going several times up to 0,75%. In Europe, the ECB begins a similar maneuver in July, after 11 years of accommodative monetary policy.
Slow decline in bonds
The consequences for bonds are not long in coming and the latter take a nosedive from the start of March. The rest of the year is just a long, slow slide punctuated by central bank announcements. On several occasions, bonds catch their breath, buoyed by the hope that an economic slowdown or a drop in inflation will push central banks to rein in the rise in rates. Paradoxically, investors almost come to hope for a recession. But these hopes are always dashed by data showing a vigorous economy and high inflation. European government bonds end the year down 18,1%, unheard of since the 1970s.
Gas prices peak
Having failed to wage a blitzkrieg, Russia finds itself indirectly confronted by the West. Knowing that Europe is highly dependent on its gas, it does not hesitate to use it as a weapon pointed at Europe, and in particular at its economic engine: Germany. Repeated breakdowns, prolonged maintenance, embargo… Any excuse is good to turn off the tap and drive up prices. The price of gas therefore soars in March to 322 euros/MWh, up 347% since the start of the war, and even reach 346 euros/MWh at the end of August, a new all-time high which causes household bills to explode. Fortunately, the price eventually normalizes in October, thanks to a rather mild autumn and reconstituted gas reserves.
Galloping inflation, like in the 70s
Inflation is the focal point of the year, the one towards which everything converges. Indeed, the main events that punctuate the stock market year are either causes or consequences of inflation: the end of COVID and the conflict in Ukraine contribute to the surge in the prices of certain foodstuffs and energy, and the successive rate hikes imposed by central banks have the sole objective of curbing inflation on a scale not seen for almost 50 years. In October, inflation rises to 12,27%, its highest level since June 1975.
Biden and the midterms
Historically, midterm elections in the United States have always been favorable to investors, especially when the President loses his majority in Congress. Why? Because the legislative impasse that follows this kind of election generally prevents the two parties from passing the most radical aspects of their respective programs… and political moderation pleases investors. The day after November 8, 2022, the markets begin by falling slightly, before jumping sharply on November 10. That day, the world stock market moves up by 3,2%, and the NASDAQ by more than 7%!
Stocks blow hot and cold
Unlike the bond market, the stock market fluctuates throughout the year. Twice, in April and August, equities almost return to their level at the start of the year. The increase is also fairly clear in December, before a relapse caused by statements by the President of the ECB, Christine Lagarde, which leaves no room for an easing of European monetary policy. The dreaded crash ultimately did not take place, the market undoubtedly anticipating a more favorable environment in the medium term.
Christmas, hope is reborn
Eventually, after several months of stagnation, the year ends on some positive notes. With a loss of 12,5%, the world stock market limits the damage during a year of all dangers. From a purely economic point of view, it was even an excellent year with growth of 3,2% in Europe and record job creation. Nearly 100.000 new jobs were created in Belgium, a figure which had not been reached for 70 years. The rise in energy prices has been curbed and has pushed Europe to gradually emancipate itself. Ultimately, the dreaded recession has not taken place and its specter is even receding for 2023.
And 2023?
As we are still looking for a sufficiently reliable crystal ball, we will refrain from any form of short-term projection. What we focus on at easyvest is the long term. History has shown that financial markets follow a upward trend over the long term and that investing in stocks while reducing costs as much as possible is the best way to grow your wealth. Easyvest remains by your side to guide you through this turbulent period and wishes you a year 2023 as peaceful as possible.