2022 Review and Outlook 2023
2022 has been dismal for many investors. How bad was it?
We will review how an investment of $100.000, made on the first of the year, performed across different asset classes. Only a few investment classes yielded positive returns.
Will 2023 be different? The opinion of leading investment banks will give us an outlook on what to expect in 2023.
2022—A Dismal Investment Year
2022 was not a very good year for investment performance. Energy and fuel shortages, inflation, interest rate increases, recession fears, and the conflict in Eastern Europe have all concerned investors across many markets. Bonds, tech stocks, and cryptocurrencies were especially hard hit.
Understanding the results of 2022 will enable wise investment choices in 2023. We have prepared a top-and-flop investment overview including stocks, bonds, and commodities over 2022. For simplicity reasons, we did not consider taxes and transaction costs. All values are in US dollars. The dollar appreciated significantly against other currencies in 2022, driving down the returns of assets valued in a foreign currency.
Top Investments: Turkish and Argentine Stocks
Turkish stocks offered the highest returns in 2022. Investment in MSCI Turkey exchange-traded fund (ETF) ended the year with a return of +92%.
The performance of Turkish stocks is quite astounding, considering that inflation in Turkey is above 80%, the national trade deficit has reached an all-time high, and the Turkish lira has been on the decline. However, the revenues of Turkish companies have been rising faster than inflation, and Turkish investors have invested their money into the local stock market to safeguard from inflation.
Investments in the broad Turkish economy are risky. Inflation will remain high and economic indicators point towards a slowdown in economic growth in 2023. In addition, the outcome of this summer’s general election is uncertain and may hamper economic growth.
The second highest return in 2022 was the Argentine S&P Merval of the Buenos Aires Stock Exchange. In dollars, the exchange closed up +43%. In pesos the S&P Merval was +142%, well above Argentine's +95% inflation rate. The main driver of growth was the energy sector. The top three energy companies gained +139% to 171% in pesos.
In early 2023, the S&P Merval continued its growth momentum and stocks closed even higher. Nonetheless, it is rather unlikely that the outstanding results of 2022 will be repeated in 2023. In addition, it is difficult to find an ETF on offer for the S&P Merval in the United States.
Flop Investment 2022: Bitcoin and other cryptocurrencies
In 2021, cryptocurrencies outperformed most other asset classes. Unfortunately, in 2022, cryptocurrencies crashed hard. Investors who were brave enough to invest in bitcoin finished the year -48%.
Investing in cryptocurrencies has always been highly speculative. The market is volatile and dominated by many fin-tech players whose credibility and financial stability remain questionable.
S&P 500 Worst Year Since 2008
The S&P 500 performed poorly in 2022. At peak, the index was down about -25% from its opening value on 1/1/2022. Due to a minor rally since October, the index has reduced its annual loss to -20%, which is the worst since 2008 when the index lost -38%. The S&P 500’s 2022 return is on par with the collective returns of emerging markets represented by the MSCI Emerging Markets index.
S&P 500 winners mainly came from the energy sector. While high fossil fuel prices significantly contributed to high consumer and producer price inflation, they were great news for energy companies previously buffeted by antagonistic government policies. Accordingly, the energy sector returned more than +59% in 2022, significantly outperforming every other S&P 500 sector.
No other sector gained in 2022. The second-best performing sector, utilities, delivered a return of -1%.
Big Tech was a clear loser. Over the past decade, Big Tech soared to new heights, as the sector enjoyed a low-inflation, low-interest rate environment. That’s no longer the case.. Information technology and communications stock prices clearly reflect that.
Elon Musk’s Tesla was down about -70%, and Mark Zuckerberg’s Meta, Facebook’s parent, was down about -65%. Even Apple, generally considered more resilient than other tech companies,was down -31%, more than the overall market in 2022.
The poor performance of Big Tech in 2022 is very well captured by the NASDAQ 100 index, which was -34% in 2022.
Other international stock markets offered better returns in 2022. Besides the stock markets in Turkey and Argentina, the Brazilian stock market, represented by the so-called “Ibovespa index,” was another clear winner. In USD, the market returned nearly +12%.
The performance of European markets was also better than the S&P 500, especially when considered in local currency. The appreciation of the dollar had a negative impact on USD returns. In local currency, Portuguese stocks were +2% (-4% USD), British stocks were down only -1% (-11% USD), and broad European stocks represented by the Stoxx Europe 50 index were down -12% (-17% USD). Also noteworthy is the performance of Japanese stocks, which lost -5% in yen but was +17% USD.
A simple hedge at the beginning of the year can arbitrage the foreign exchange risk.
Bonds Worst Year on Record
2022 was the worst year on record for bonds, even if you go back 250 years, according to Edward McQuarrie, investment historian and professor at Santa Clara University.
The implosion is largely a function of the U.S. Federal Reserve (Fed) aggressively raising interest rates to fight consumer price inflation, which peaked in June 2022 at +9.1%, the highest rate since the early 1980s. Fixed coupon rate bonds lose resale value when the Fed raises interest rates. A bondholder must then lower the sale price to account for the spread between the coupon rate and the new Fed rate. (See our December 2022 newsletter titled “Investor Profits Continue” for more details on the Fed’s interest rate hikes in 2022.)
Two bond indexes tracked and published by the Fed underscore the historically poor performance of bonds. The US high-yield corporate bond index was down -11% and the US government bond index for 10-year treasuries lost -15%. Most impacted by the Fed’s rate hikes were long-term 30-year US treasury bonds, which lost -39% in 2022.
Bonds, considered a safe, conservative part of an investment portfolio, looks to continue to generate losses.
Safeguard has reviewed the market outlook reports of the top 5 investment banks and prepared a quick summary for you. Their 2023 market outlooks range from moderately optimistic to solidly pessimistic, along with a key statement found in the respective report.
At Safeguard, our sentiment for the US economy is leaning optimistic and we expect a mild recession during the year 2023 followed by a recovery in 2024. In the current market environment with high interest rates and slowing inflation, we see that quality assets are now much cheaper for investors.
Housing Outlook 2023 – Significant Regional Differences
The well-renowned investment bank Goldman Sachs has released a research paper concerning the US housing market titled “Getting worse before getting better.” In the paper, the investment bankers argue that the national home price correction will continue through 2023. The overall peak-through-trough decline across the US will be -10% from June 2022 to the end of 2023. In 2023 alone, US house prices are forecast to drop 6%.
However, the impact on regional markets differs quite significantly. Overheated housing markets in the Southwest and along the Pacific Coast will be hit hardest. In 2023, Goldman Sachs forecasts double-digit declines in cities like Austin (-16%), San Francisco (-14%), San Diego (-13%), Phoenix
(-13%), Denver (-11%), Seattle (-11%), Tampa (-11%), and Las Vegas (-11%).
Further, Northeastern, Southeastern, and Midwestern markets could see milder corrections in 2023, if any correction at all. The investment bank expects prices to barely fall in places like Chicago (-2%),
St. Louis (-1%), and Philadelphia (0%), while it forecasts home prices rising in Baltimore (+1%) and Miami (+1%).
For the year 2024, Goldman Sachs expects US home prices to rise by 1%, even as markets like Austin and Phoenix continue to fall.
See chart “Regional Home Price Shifts in 2023” on next page for more information about markets across the US.
What Does it Mean for Investors?
There are opportunities to benefit from the housing market, despite the downturn in 2022. If you like the high risk, high reward route, you can try the stock market or even try buying real estate in one of the depressed markets. Alternatively, if you are focused on cash flow, you can invest with first trust deed lending in one of the markets where Safeguard Capital Partners is present. Equity backed and asset secured investments mean more return for you with less risk.
At Safeguard, we offer first trust deed real estate lending options secured by actual, physical assets. Current loan-to-value ratios are very conservative and range between 50% and 70%, providing a healthy equity cushion to your investment. In addition, we offer rates between 10.5% and 12.0% out pacing inflation and most conservative investment options. Our team has spent the last 15 years creating wealth for our clients. Get your money working for you! You can reach out to us via this email or give us a call: 877-280-5771
Safeguard Makes the Difference
We currently have lending options to meet every investment need. Short term, long term, large or small; we have an investment instrument for you. Don’t sit on the sidelines watching the value of your money decrease due to rising inflation. Get your money working for you!
Reach out to your trusted Safeguard advisors today!
Managing Director: Corey Fleetwood- corey@safeguardcapitalpartners.com
Director of Operations: Andrew Reed- andrew@safeguardcapitalpartners.com
Customer Relations Manager: Walter McManigal- walter@safeguardcapitalpartners.com
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