Pessimism dominated the markets like never before in 2022

In our biweekly publication ‘Monitor' provides you with a structured overview of current capital market developments.

Current market commentary

The fourth quarter brought a more conciliatory end to one of the worst years in history for multi-asset investors, with the most aggressive monetary tightening in more than 40 years hitting equity, bond and real estate valuations alike. Commodities offered the only bright spot, not least because of Putin's war and the simmering energy crisis. However, the starting point for 2023 is now better than last year with cheaper valuations, higher interest rates, still widespread pessimism, low risk positions of many investors and high cash balances. Risks are nevertheless high and renewed setbacks are likely in the first half of the year, also due to the ongoing withdrawal of liquidity by central banks. The global economy is likely to weaken further before picking up again. Volatility is likely to remain elevated in 2023. We see opportunities particularly in commodities, corporate and emerging market bonds as well as equities from Europe and individual emerging markets.

Short-term outlook

After a year dominated by inflation and fears of recession, investors are likely to focus more on corporate earnings in 2023. It will therefore be exciting from mid-January onwards, as the Q4 reporting season will then pick up considerably with the figures of the major US banks. In addition, the Economic Forum in Davos will take place from 16 to 20 January and the Year of the Rabbit begins in China on 22 January. German inflation (Dec.) and retail sales (Nov.) will be released on Tuesday. Chinese and eurozone services purchasing managers' indices (PMI, Dec.) and ISM manufacturing purchasing managers' index for the US (Dec.) and inflation data (Dec.) for France will follow on Wednesday. On Friday, German and US Factory Orders (Nov.), Eurozone economic confidence (Dec.), ISM services PMI (Dec.) and US labour market data (Dec.) will be released.

Pessimism dominated the markets like never before in 2022

Source: AAII, Bloomberg; Time period: 23/07/1987 – 29/12/2022.
  • The bull-bear spread was only one week positive in 2022. Such a low number was the first time in history. Pessimism dominated throughout the calendar year - even during the 2008 financial market crisis there was more optimism among US private investors. However, there has long been talk of an impending recession and a collapse in profits – so surprises should be limited. If equity markets continue to fall, a "grinding lower" is probably more likely than strong, rapid sell-offs as in the Corona crisis.