It seems to have been a year for investors to sit on their hands.
Stocks generally have had a miserable performance in 2022, with the ISEQ Index of leading shares ending the year around 15% lower. In the US, the main benchmark S&P 500 Index is set for an even larger loss, which, at closer to 20%, will be the biggest since the 2008 financial crisis.
The one stock index that has held its ground is the UK’s FTSE 100 Index, which is closing broadly unchanged. This is because the shares listed in London are more likely to be in the mining and energy sectors, a couple of the very few industries that did well this year.
Looking down to the individual corporate level, there were a few big winner of Irish interest.
FBD Holdings were boosted by strong results and the resumption of dividend payments.
Allied Irish Banks and Bank of Ireland have seen their shares surge since the middle of the year due to ECB rate hikes.
Basically, the higher the ECB pushes rates, the more banks can make from the difference between what they charge for loans and what they pay for deposits. High interest rates are generally good for bank earnings under what they call “net interest margin”.
Away from financial companies, the performance of Kerry Group and Glanbia left much to be desired – more on that across the page.
Away from stocks and shares, there continued to be some growth in house prices, but that has slowed considerably towards the end of the year.
Latest CSO data shows residential property prices increased by 9.8% in the year ending in October. With the ECB set to continued hiking rates into 2023, there may be more pressure on house prices next year.
In more exotic realms, gold was down less than 1% this year, silver dropped 6% and super-hyped digital currency Bitcoin plunged more than 60%.
With the exception of Bitcoin, the moves in most other assets this year come down to a fairly simple driver – the sustained return of inflation to the global economy. That has been exacerbated by the energy crisis following Russia’s invasion of Ukraine.
Lower oil prices
Clearly, neither of those issues are fully resolved – Russia is still in Ukraine, and inflation is still around 10%. But, there are signs the energy market is recovering from the Russia shock, which should mean lower oil prices. This, in turn, should mean lower inflation.
This should mean there will be less uncertainty in markets next year, and almost definitely less volatility. However, the big threat to financial performance in 2023 will be how global growth turns out.
If economic activity remains sluggish, and inflation fails to return close to 2%, then pressure on consumers – and by extension, corporate profits – will only increase.
Banks aside, 2023 may be another year where sitting on your hands will turn out to have been a good idea.