THE REAR VIEW MIRROR
As we step into 2022, and look back at 2021, Global equities provided stellar returns finishing the year up ca. 32%. For the stock pickers, in particular within the technology sector, returns which one might expect to see annually, seemed to deliver almost monthly for a while, before, inevitably, the reality of forecasted interest rate adjustments and company overvaluations started to creep towards the end of the year.
Meme stocks, (don’t worry it’s a new term to me too!) driven in large part by retail (so called “Hood” investors) helped drive the whipsaw of volatility with some delivering eye watering temporary returns for companies with very little balance sheet substance and scything those short sellers in hedge funds who had acted rationally.
OUTPERFORMERS & LAGGARDS
Geographically, the US was the best performing region and within business sectors, we saw some rotation as the Growth companies gave some ground to Value companies through the redistribution of capital within the markets. Across sectors, Energy (+53%), Technology (+40%), real estate (+39%) and Financials (+38%) all outperformed the markets with the laggards being the income producers such as consumer staples, telecoms and utilities, much in line with what might be expected given the emergence from a COVID restricted world.
THE RETURN OF INFLATION
Rising inflation started to take hold in 2021 with the CPI finishing the year at 5.5%. In the US, inflation hit 7% and beyond depending on states, and with the Federal Reserve finally signalling to the markets their intention to raise interest rates in 2022, we saw the start of an increase in market volatility which continues today.
Rising inflation also increased bond yields, thus reducing prices, the effect of which was seen greatest in long dated sovereign bonds.
The final big headline was the price inflation in commodities (with the exception of Gold which was flat) as the economic rebound saw sharp price increases across Oil (+55%), Gas (+53%), Aluminium (+37%) Copper (+27%), Steel (+49%) and …….Coffee (+76%)
DOWNSIDE RISKS IN 2022
So, with COVID and its variants still ever present, supply chains still not repaired, a high inflationary environment, imminent rising interest rates, war mongering in Eastern Europe, China tightening regulation, the US / Sino tensions rising and billionaires flying to space, it’s fair to say that we can expect some significant volatility across all markets in 2022.
We can’t control nor predict the markets. We do know from experience, that during times of great uncertainty, the worlds innovators, will step back, re-evaluate & adapt to the new macroeconomic reality in their continued pursuit of greater earnings growth and we, as owners of these companies benefit from these adjustments in the long-term.
If you are interested in starting your conversation about how investments fit into your Lifetime Financial Plan, please message me direct or contact us through www.lifetimefinancial.ie
Michael Wall PhD CFP® is a Director at Lifetime Financial Planning. Lifetime Financial Planning Ltd Trading as Lifetime Financial Planning is regulated by the Central Bank of Ireland. All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.