With the last day of trading on the financial markets, 2022 ends today, and it’s time to take stock of investments. The most immediate thing to notice is that since 2008 there has never been such a negative year in terms of performance. Too many things have happened to have no consequences, and the effects have been dramatic on investors’ wallets. Inflation dominated the scene, forcing central banks to tighten monetary policy by raising interest rates. Few assets have survived the storm, but as with all self-respecting disasters, there are those that have benefited greatly. So let’s see in detail a review of which were the best and worst investments in 2022 and what the prospects for 2023 may be.
Investments: who wins and who loses in 2022, prospects for 2023
Certificates of Deposit and Savings Accounts were in great demand in a year when investment volatility and uncertainty was very high. The higher yield gave you the ability to secure your money while getting a good return. Something that would have been completely unthinkable just a year ago, when all central banks kept borrowing costs close to zero, with very low interest rates in the fixed income market.
For 2023? Interest rates are likely to remain high in the first part of the year as banks continue to raise interest rates until inflation falls back towards the 2% target. Central banks (particularly the Federal Reserve) are likely to start easing monetary policy in the second half of the year, with the first cuts expected in late 2023 and early 2024.
Bonds have shined throughout 2022 because, like real bonds, they have delivered very attractive real interest rates. Investors particularly benefited during the period, as the share recorded a record 9.62%. In fact, October sales reached nearly $7 billion, which is 7 times higher than in 2021.
Some financial advisors are recommending them for next year, but we’ll have to see how inflation goes. If this were to cool off significantly, it would be unthinkable to see the same return this year.
None have done better than energy stocks in the stock market. The war between Russia and Ukraine has triggered an energy crisis by skyrocketing the prices of raw materials such as gas and oil. Energy producers have capitalized on the momentum, also and largely thanks to their pricing power. In some countries, such as Italy, corporate profits have been taxed, but this has not been enough to curb the increase in their shares.
Oil and gas prices have fallen significantly from their yearly highs, so the outlook for 2023 is likely to at least stabilize. Unless Western-imposed price caps on gas and oil lead to a major supply crisis that pushes fuel prices back to this year’s insane levels.
The real losers in the investment arena have been technology-related stocks. The sector has been hit by a sell-off after the big pandemic hangover. Some stocks have almost completely lost their value (see Carvana), while tech bigs like Meta and Tesla have burned more than two-thirds of their capitalization. What has hit tech companies has been rising interest rates, which have made financing more difficult to support long-term investments and stock valuations less valid as a discount to future cash flows.
Tech stocks should catch a breather in the coming year, especially if central banks change their monetary policy for interest rates. A return to buying by investors cannot therefore be ruled out, also because now the prices will be attractive for entering the market.
If 2022 was a testing ground for technology stocks, darkness has indeed fallen on cryptocurrencies to completely obscure a star that had been shining for years. From a capitalization of over $3 trillion in November 2021, the cryptocurrency sector has declined to a market value of just over $800 billion. The incident made us think of the bursting of a bubble, with the implosion of the TerraUSD stablecoin and the bankruptcy of some crypto companies, among which Sam Bankman-Fried’s FTX stands out, which had positioned itself as the savior of cryptocurrencies in difficulty.
For 2023 there is the most absolute uncertainty. What is to come could be the year of regulation that can restore some confidence to the sector, but not a few foresee the disappearance of cryptocurrencies from the scene. This time forever.