December 2022 Market Update

General Market Overview

US recession

Despite the positive news regarding the US unemployment rate remaining at its 50-year low at 3.7%, David Solomon (CEO of Goldman Sachs) has perceived ‘greater volatility on the horizon’ and ‘high chances of a recession on the way’. Weeks later, it was announced that Goldman Sachs is reportedly considering laying off 4,000 of its 40,000 employees worldwide, with other major US organisations such as Amazon, CNN and Morgan Stanley all following suit. Although this is yet to happen, it is intimidating to envision what could be if this initial projection in response to Jerome Powell’s recession preparation of a ‘Soft landing’ is adhered to, although this is the fastest interest rate hike cycle in US history.

Yields on the rise: US Treasury turmoil

Although the FED has taken every precaution to ensure that a ‘soft landing’ recessionary period is met through their interest rate hikes, this has pushed US treasury yields to rise at a significant rate with current 10-year yields at 3.87%, as of the 29th of December 2022; a 2.67% rise in the last year (Bloomberg, 2022). Given the inverse relationship between bond yields and their respective prices, this has caused a mass crash in a bond’s valuation. Therefore, the conventional 60/40 portfolios, or any portfolio with a designated bond holding, have suffered during this interest hiking period. Despite being traditionally considered the ‘risk-free’ rate, this has presented a massive headache for those currently invested heavily into bonds, whilst offering a potentially good entry point for those who had previously shunned fixed interest. Successful active bond management may benefit investors who navigate the current stormy economic climate.

China’s covid restrictions

In recent statements, it has been reported that China has the intention of reopening its borders, dropping its Covid-19 quarantine requirements for arrivals into China, all whilst dismantling the Zero-Covid rule that was struck upon its entire nation. However, there is mass global concern surrounding this news as there has been a recent surge in Covid-19 cases with major fears over the detection of new variants spawning over the country. Nevertheless, with the Chinese economy significantly slowing down, officials have deemed it an economic necessity to reopen its economy in fear of its future. In response, the US has imposed Covid testing for all visitors from China, whilst Tesla has reduced production plans in their new Shanghai Gigafactory in fear of contributing to the ever-growing issue. Despite suffering a heavy loss upon initial news of surging Covid outbreaks, the opening of its economy has seen its primary index, Shanghai Stock Exchange Composite (SSE Composite), outperform its other global index peers throughout December.

Our Strategic Views, positioning and general markets

The past year has given us a visual representation of how markets can react during times of redistribution of wealth and challenging economic environment. Despite holding a value bias, typically flourishing during the economic downturn and high inflationary periods, UK markets should be magnanimous in their performance, 4.70%, over the past year given the cost-of-living crisis, government policy disputes and the death of our longest-ever monarch. The heavy growth bias of the US has dictated that technology will not always serve as the overperformer, with the S&P 500 and Nasdaq 100 down -8.25% and -23.86% on the year respectively, the latter being more technology dominant. Similarly, the likes of the Shanghai Stock Exchange Composite remained volatile with their nation’s main index declining -12.38% due to economic inactivity, namely their ‘Zero Covid’ policy. As such, global economies and markets have had a turbulent 2022 and are widely anticipated to continue throughout the coming year.

 

We, at Strategic Solutions, understand that this past year has been challenging on markets and families all over the globe; nobody can say for certain what lies ahead of us in 2023 either. Strategic Solutions remain assured that each of our investment strategies is well diversified and positioned for each of our client’s individual needs and objectives. However, we endeavour to focus on the longer-term view of investing. Given the strong overperformance of our portfolios over 2020/21, we are comfortable with how markets and our investment strategies have performed over the last year, especially when considering the mass market volatility and the global redistribution of wealth we are currently experiencing. If you have any immediate concerns or would like to further understand further anything discussed in our monthly market commentaries, please contact your adviser, otherwise, we look forward to seeing you in our next meeting in the new year!

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