This market commentary covers the fourth quarter (Q4) of 2022, closing a challenging year for equity and bond returns.
Central banks continued to tighten monetary conditions as expected with base interest rates in the UK and the US increasing to 3.5% and 4.5% respectively, a meaningful increase from the 0.25% at the start of the year. This is beginning to show its effect on softer inflation data seen in some countries, however still substantially above the 2% target most developed central banks strive for.
Global equity markets finished the quarter largely positively with the MSCI All Countries Index closing higher by +1.86% mitigating the -8.08% decline for the year.
The UK’s FTSE 100 returned +8.7% for the quarter, finishing the year higher by +4.6%.
The US’s S&P 500 gained +1.1% over the quarter (-8.4% for 2022). In Europe, the EuroStoxx 600 finished higher by +10.7% reducing the 2022 decline to -5.2%.
Bonds continue to adjust to the monetary conditions and interest rate expectations with the Bloomberg Barclays Global Aggregate gaining +0.7% in Q4, easing the -12.2% decline for the year.
Gilt yields have decreased into year-end with 10-year gilts now at 3.66%, a substantial drop from 4.08% at the beginning of the quarter as the UK’s political landscape stabilises and Liz Truss’ legacy is eroded. The US 10-year treasury has finished the year at 3.88% from 3.83% at the end of September 2022.
The Pound recovered +8.2% in the last quarter against the US Dollar (-10.7% YTD), finishing the quarter at $1.20. Against the Euro, the Pound has remained largely unchanged at €1.13, a -0.8% decline for the period and -5.0% lower for 2022.
In commodities, gold gained 9.8% in the last quarter finishing the year at $1,824 per ounce, a -0.3% decline for 2022. In energy markets, oil has continued to soften, finishing lower at $85.91 despite the 10.5% appreciation for 2022. Natural gas continues its decline despite finishing the year higher by 20%.
Going into 2023 the tapering of central bank’s balance sheets and the increase in the cost of living which far surpasses the published inflation numbers is likely to suppress earnings expectations and further dampen economic growth.
Returns are quoted on capital returns, exclude dividends and in GBP terms
Bloomberg Barclays Global Aggregate is GBP hedged
YTD – Year-to-date
Quarterly figures: 30/09/2022 to 31/12/2022
Year-to-date: 31/12/2021 to 31/12/2022
Source: Bloomberg